.af^l 




ELEMENTS OF ECONOMICS 



THE MACMILLAN COMPANY 

NEW YORK . BOSTON • CHICAGO 
DALLAS • SAN FRANCISCO 

MACMILLAN & CO., Limited 

LONDON • BOMBAY • CALCUTTA 
MELBOURNE 

THE MACMILLAN CO. OF CANADA, Ltd. 

TORONTO 



ELEMENTS OF ECONOMICS 

WITH SPECIAL REFERENCE TO AMERICAN 
CONDITIONS 

FOR THE USE OF HIGH SCHOOLS 



BY 



HENRY REED BURCH, Ph.D. 

HEAD OF DEPARTMENT OF HISTORY AND ECONOMICS 

CENTRAL MANUAL TRAINING HIGH SCHOOL 

PHILADELPHIA 



SCOTT NEARING, Ph.D. 

WHARTON SCHOOL OF FINANCE AND COMMERCE 
UNIVERSITY OF PENNSYLVANIA 



Web) gork 

THE MACMILLAN COMPANY 

1912 

All rights reserved 






Copyright, 1912, 
By the MACMILLAN COMPANY. 



Set up and electrotyped. Published May, 1912. 



Norfaoolr ^fnug 

J. 8. Gushing Co. — Berwick & Smith Co. 

Norwood, Mass., U.S.A. 



€aA314187 



Co 

THE MEMORY OF 
H. B. C. 



PREFACE 

The growing importance of the newer economics makes 
necessary a simple statement of its fundamental principles. 
The present work, designed especially for the use of 
secondary schools, has been prepared with this object in 
view. Since the book is intended primarily for the begin- 
ner, every effort has been made to secure simplicity of 
treatment. 

This simplicity manifests itself chiefly in two directions. 
In the first place, emphasis has been laid upon the con- 
crete and descriptive side of economics. Great attention, 
therefore, has been paid to the subject of the production 
of wealth, and much material of an industrial character 
has been added. In the second place, each chapter is 
preceded by an outline of its contents and followed by a 
series of questions which bear on the general topic of the 
chapter. In those schools where only a very limited 
amount of time can be devoted to the study of economics, 
it will be found possible to omit or summarize certain parts 
of the book according to the special needs of the students, 
or the particular inclination of the teacher. 

To those who have come under the inspiring influence 
of Professor Simon N. Patten, it is almost superfluous to 
acknowledge here the debt of obligation embodied in this 
work. 

Philadelphia, April, 19 12. 



CONTENTS 



Introduction 



PAGE 

xiii 



PART I 

ECONOMIC IDEALS 

HAPTER 

I. The Goal of Economic Endeavor . 
II. Economic Ideals 

PART II 
CONSUMPTION OF WEALTH 

III, Problems of Consumption .... 

IV. The Problem of the Standard of Living 
V. Wages and Standards . . • . 



20 
31 

37 



PART III 



THE PRODUCTION OF WEALTH 





BOOK I. THE FACTORS OF PRODUCTION 




VI. 


Natural Resources of the United States 


45 


VII. 


Land Reclamation . . . . • . 


55 


VIII. 


Forest Resources 






62 


IX. 


Water Resources 






69 


X. 


American Labor .... 






78 


XL 


Immigration 






88 


XIL 
XIII. 


The Risks of Labor . 
Some Labor Problems 






94 
103 



Contents 



CHAPTER 

XIV. 

XV. 

XVI. 



Education of the Worker 
Capital .... 
The Social Surplus 



BOOK 11. PRODUCTION IN THE UNITED STATES 

XVII. American Agriculture 

XVIII. Soil Fertility 

XIX. The Production of New Species 

XX. American Industry 

XXI. Large Scale Production 

XXII. Business Organization . 

XXIII. The Industrial Army . 

XXIV. Transportation 
XXV. Regulation of Transportation 



PAGE 



138 
146 
152 
158 
167 

182 
189 



PART IV 
EXCHANGE OF WEALTH 

XXVI. Value and Price . 206 

XXVII. Price and Monopoly . . . . . .214 

XXVIII. Instruments of Exchange 222 

XXIX. Modern Finance . . . ' . . . . 232 

XXX. Foreign Trade 240 

XXXI. Taxation .248 



PART V 
THE DISTRIBUTION OF WEALTH 

XXXII. Preliminary Survey of Distribution . . 255 

XXXIII. The Theory of Rent . . . . . . 265 

XXXIV. The Theory of Interest . . . . " . 274 
XXXV. The Theory of Profits ., ... 281 



Contents 



XI 



CHAPTER 

XXXVI. 
XXXVII. 



The Theory of Wages 

The Outlook for Distribution 



PAGE 
288 

296 



PART VI 

ECONOMIC EXPERIMENTS AND PROGRAMS 

XXXVIII. Experiments of the Employer . 

XXXIX. Experiments of the Worker . 

XL. The Program of Regulation 

XLI. Programs of Socialization 

XLII. Social and Economic Progress 



304 
316 

329 
337 
348 



INTRODUCTION 

Every subject of study has its particular field of inquiry. 
Thus, mathematics arises from a study of form and number 
and includes, among other subjects, a fundamental knowl- 
edge of geometry and algebra. Physics, in a similar manner, 
investigates the general realm of matter and leaves to chemis- 
try a more careful analysis of the elements and their com- 
pounds. Likewise, history concerns itself with the general 
development of mankind along political, industrial, and 
social lines ; while civics deals with the more special study 
of government. In studying economics, we shall find 
that, in exactly the same manner, this subject further 
specializes in a field peculiar to itself and rests upon a basis 
distinct from that of every other science. 

The rapidly growing importance of economics and its 
vital connection with everyday life combine to make it 
highly desirable for all wide awake people to understand 
something of this science and to grasp clearly its fundamen- 
tal characteristic. Economics arises from the study of 
wealth and investigates the problem of welfare. Of course 
welfare, from the standpoint of material well-being, is not 
possible without wealth. Therefore, in order to understand 
the objective basis of economics we must have a clear con- 
ception of the meaning of wealth. 

Wealth may be either material or immaterial. For ex- 
arhple, houses, factories, food, and clothing are articles of 



xiv Introduction 

material wealth ; while health, capacity, and character are 
illustrations of immaterial wealth. Both kinds of wealth 
possess value, but immaterial differs from material wealth 
in that it cannot be subjected to the process of exchange ; 
that is, immaterial wealth cannot be bought and sold like 
food and clothing. It is needless to say that immaterial 
wealth is of greater value than anything else in life. How- 
ever, a study of this kind of wealth does not properly belong 
to the field of economics, but is a legitimate part of the 
science of education, or of psychology, or of ethics, or of some 
similar study. Nevertheless, when immaterial wealth is 
productive of material wealth, economics becomes indirectly 
interested in the solution of some of its problems. For 
example, if education produces efficiency and efficiency re- 
sults in the production of material wealth, economics ac- 
quires an indirect but real interest in the growth of education. 
That is, just as wealth is a means of promoting welfare, so 
may education increase the amount of wealth produced by 
society. 

However, economics is primarily concerned with material 
wealth, and it is therefore imperative for the student to have 
a clear conception of its essential characteristics. In the 
first place, material wealth may be bought and sold ; that is, 
its ownership may be transferred from one individual to 
another. We have just seen that this characteristic is 
distinctive of material wealth. The strength of a Hercules, 
the genius of a Shakespeare, or the honesty of a Lincoln 
can never be transferred from one person to another. On 
the other hand, the palaces of kings, the paintings of old 
masters, or the products of a steel mill may easily pass 
from the hands of one into the possession of another. It is 
always possible, therefore, for material wealth — no matter 



Introduction xv 

what its character or how high its value — to be exchanged 
for some other commodity of equal value. 

But material wealth possesses something more than this 
element of transferability ; it possesses the quality of satis- 
fying human wants. Some things are easily transferred 
from one person to another, or from one place to another, 
and yet do not satisfy any individual want. For example 
the dirt of the street is only too easily brought into the home, 
but it is not material wealth because it satisfies no one's 
want. However, this same dirt, needed by the contractor 
in large quantities, would satisfy an individual want and 
would in this case be regarded as material wealth. This 
want-satisfying quality possessed by material wealth is 
called utility. While degrees of utility possessed by differ- 
ent articles may vary greatly, yet all forms of material 
wealth must possess some utility. It may readily be seen 
that necessities of life, such as food, housing, and clothing, 
possess the greatest possible utility; that is, they satisfy 
wants that are most intense and universal in all mankind. 
On the other hand, automobiles, books, or fine pictures 
satisfy wants that individuals have gradually acquired, but 
that are not absolutely essential to life itself. In both cases, 
however, these different forms of material wealth possess 
utility; that is, they all satisfy, in a greater or less degree, 
the wants of mankind. 

In addition to the qualities of transferability and utility, 
material wealth must possess still another characteristic. 
The wealth with which economics is concerned must involve 
human effort. Locomotives, footballs, chemical apparatus, 
maps, textbooks, clothing, and thousands of other com- 
modities are all produced by man's conscious industrial 
effort ; that is, they are all " economic goods." In the 



xvi Introduction 

same manner, in the production of commercial coal and 
iron and in the working up of other raw materials of indus- 
try, man's labor is an essential element in the finished prod- 
uct. When individuals appropriate gifts of nature, such as 
forests and minerals, they transform them through their 
industrial effort into economic goods. On the other hand, 
such free gifts of nature as air and sunshine cannot easily be 
appropriated and, although they possess the highest possible 
utility, their existence is not the result of any human effort. 
Air and sunlight are not manufactured, therefore we cannot 
properly regard them as economic goods. Water, on the 
other hand, while a free good in primitive society, becomes 
an economic good in the modern city because human effort 
has been expended in building aqueducts, laying water 
mains, and otherwise providing a water supply. Free gifts 
of nature tend to become economic goods; but, so long as 
they remain " free " and do not form an actual basis for 
industrial effort, they do not constitute a part of that wealth 
with which the study of economics is primarily concerned. 

From this discussion, therefore, it may be seen that 
material wealth — the physical basis of economics — is a 
term applied to all economic goods, that is, to those goods 
which may be transferred from one individual to another, 
which satisfy human wants (or possess utility), and which 
represent some industrial effort. 

The beginner in the field of economics must bear in mind 
not only this concept of material wealth, but he must also 
clearly understand the relation between wealth and money. 
One of the first errors into which he is likely to fall is the 
belief that these two are synonymous, and that, therefore, a 
study of economics is merely a study of " How to make 
money." Such a misconception must be immediately 



Introduction xvii 

corrected. Material wealth includes infinitely more than 
money, and the study of economics is therefore infinitely 
broader than an ordinary lesson in money-making. The 
popular misconception of the importance of money arises 
from the simple fact that money is employed by civilized 
societies as a standard of measuring the value of all economic 
goods and as a means of exchanging one form of wealth for 
another. Gold and silver, from which money is coined, are 
forms of material wealth ; but so are iron and coal, furniture 
and clothing, food and drink, books and pictures, and 
countless other economic goods. It is therefore just as 
absurd to think of money as inclusive of all wealth as to 
think of one individual as embracing the human race. 

Material wealth, then, is the concrete basis of economics. 
Without material wealth no science of economics would be 
possible. But a knowledge of wealth, in and of itself, is 
not the highest aim subserved by a study of economics. 
Wealth is but a means to welfare, and the real purpose of the 
study of economics is to understand how welfare may be 
promoted through the medium of wealth. Accordingly, 
in our treatment of economics, we shall discuss (i) the ideals 
necessary to attain this goal of welfare; (2) the means of 
promoting welfare through the consumption, production, 
exchange, and distribution of wealth; and (3) the various 
efforts of men, individually and collectively, to realize the 
economic ideal and to attain the goal for which all are 
striving. 



ELEMENTS OF ECONOMICS 

PART I 

ECONOMIC IDEALS 

CHAPTER I 

The Goal of Economic Endeavor 

I. What is our goal ? 

1. In play: 
a. Success 

h. Achievement 

2. In life : 

a. The production of wealth 
h. The promotion of welfare 

3. The old view and the new 

11. How to attain this goal 

1. Through opportunity: 
a. Its meaning 

h. Its possibilities in America. 
c. Its real significance : 

(i) The older attitude 

(2) The newer view 

2. Through adjustment : 
a. Its meaning 

h. Its existence in nature 

c. Its never ending character 

d. Its prerequisite 

What is Our Goal ? — ^ A baseball team may aim to pile 
up a big score, or it may aim to play a good game. The 



2 Elements of Economics 

big score is success; the good game is achievement. The 
In play : team that aims to pile up big scores wants games 
Success or With weak opponents ; but the team that aims to 
achieve- pjay a good game desires in its adversaries equal, 

if not greater skill. The big score team triumphs, 
while the good game team learns. The latter may lose every 
game of the season, and yet attain a proficiency in baseball 
far above that of the former team. 

It is thus entirely possible to play baseball for scores or 
to play for the love of a good game. Exactly the same 
possibilities present themselves in the economic world, 
except that the choices are rather more numerous and com- 
plex. For example, a man may have as his aim in life any 
one of the following objects of economic endeavor. He may 

strive for money, the counters of the economic 

In life : i -i i 

The produc- 8^™^? ^^d, hke the miser, hoard them and gloat 
(ion of over them. Or he may overlook the counters and 

"^^"^^ ■ work for the things which the counters repre- 

sent, — the wealth of society. Again, a man may have 
for his object the satisfaction of his wants ; in which case 
he works for the counters, exchanges them for the wealth, 
and thus, by the possession and use of the wealth, satisfies 
the wants which led him to work. 

Many men, however, have as the chief object in life the 
attainment of progress, — a forward movement of the entire 
group to which they belong. If a large group is striving for 
progress, civihzation will be advanced and the welfare of 
The promo- ^^^^ member of the group will be augmented. 
Honofwei- Of coursc, in order to secure progress, it will be 
necessary to use money and wealth in order to 
satisfy the wants of the individual ; yet there is just as wide 
a difference between working for wealth and working for 



The Goal of Economic Endeavor 3 

welfare as there is between playing baseball for scores and 
playing to play a good game. In the first case man works 
for counters; in the second, for development. 

Economics is not merely " the science of wealth " but is 
becoming more and more " the science of welfare." The 
early idea was that economic goods are the logical end 
of economic endeavor ; that the nation which is producing 
economic goods in great abundance is a successful nation, 
irrespective of any other test. The newer view xheoid 
holds, on the other hand, that true advancement view and 
lies, not in the production of goods, but in de- "®^' 
veloping the lives of men and women, and that, while this 
end may be achieved through the production of goods, the 
production is merely incidental to the development of 
manhood and womanhood. Production is not an end in 
itself, but merely a means to welfare. 

How to Attain this Goal. — The attainment of welfare — 
individual and social well-being — depends in the first place 
upon opportunity; in the second place upon adjustment. 
Let us examine briefly the part played by each of these 
factors in individual and social welfare. 

Opportunity is an equal chance given to the members of 
each generation to become unequal. Far from signifying 
equality, opportunity involves only the thought that each 
person shall have an equal start. The " starter," who 
shoots the pistol for the mile run, does not make „, 

. , Through 

the runners equal when he insists that each start opportun- 
at the same time from the same mark. On the ^*y- 

. , . , r • 1 ^^^ meaning. 

contrary, he gives the contestants a fair chance to 
show how unequal they are. Those who urge the necessity 
of opportunity are doing no more than the " starter," — 
insisting that each contestant in the race of life shall start, 
fully prepared, with an equal chance to do good work. 



4 Elements of Economics 

As a nation, America to-day presents rare opportunities. 
Contrast, for a moment, the conditions of the eighteenth 
century with those of the twentieth. In 1700 capital was 
scarce, living was precarious and, in order to secure even the 
bare necessities of life, men, women, and children were 
Its possihiii- forced to work hard and continually. In 1900, 
ties in howcvcr, the inhabitants of the United States 

have abundant capital and a marvelously devel- 
oped system of wealth production. The bare necessities 
of life, and some of the comforts as well, can be supplied in 
an eight-hour working day for adults, while the children at- 
tend school. In 1700 the possibilities for opportunity 
were limited; in 1900 they have increased a hundredfold. 

The real significance of this new opportunity is aug- 
mented by the modern view of man's possibiHties. Modern 
Its real sig- scicncc justifies the belief that, within racial lines, 
nificance. most men are born approximately equal and 
normal; hence opportunity is the chief factor in human 
development. 

This view was not always held. Even to-day people be- 
lieve in total depravity. Under this hopeless view of the 
human race, some men are depraved, sinful, wicked ; others 
are shiftless, lazy, inefficient, and poor ; while the fortunate 
ones are wise, capable, and efficient. During the cen- 
turies when this view was prevalent, birth was looked 
upon as the determining factor. This attituHe toward life 
was an attempt to justify existing conditions ; it led to 
submission and despondent resignation. It was all but 
fatalistic. 

In the course of time, however, thinkers arose and pro- 
claimed the doctrine of the equal distribution of human 
capacity. Such men talked of the right to life, liberty, and 



The Goal of Economic Endeavor 5 

the pursuit of happiness, and asserted that all men are 
created free and equal. Equalize Opportunity, proclaimed 
these " free and equal " thinkers, and, to a great extent, you 
equaHze achievement. Birth — heredity — was no longer 
the key to the situation; it was now to be found in oppor- 
tunity and environment. This view of human life is full of 
promise and inspiration, transforming men from fatalists 
into enthusiastic workers. According to its teaching, 
perhaps nine-tenths of all men and women, in a given 
grade of civilization, are born with about the same capacity 
to do good work. 

Take, for example, two boys of equal ability, born on the 
same day. In the course of their lives, one is sent to high 
school and college and does splendid work in the world ; the 
other is badly fed, poorly clothed, and sent into a cotton 
factory at the age of twelve. The first boy, because he had 
a chance, developed in exactly the same way that the second 
boy would have developed had a chance been given to him. 
An overwhelming majority of people, like these two boys, 
are normal at birth and if given an opportunity will lead 
normal, happy lives. 

Welfare can be secured only when a normal relation is 
established between men and their surroundings. The es- 
tablishment of a normal relation between men and their 
surroundings is called adjustment. If men live in poverty 
when the world about them is rich and fertile, ^. , 
there is maladjustment ; but if the wealth of the adjustment : 
community is so divided that men and women ^^^^^'^^^^s- 
are living in comfort, adjustment has been secured. The 
aim of adjustment is to change unfavorable conditions so 
that men may lead normal, happy lives. Adjustment, 
therefore, involves an approximation to the normal. 



6 Elements of Economics 

The phenomenon of Adjustment is seen in nature as well 
as in society. A river, for example, adjusts itself to the 
changes in earth formation. If a mountain range is thrown 
up, the river wears down its bed until, flowing at a normal 
gradient, it has created a canyon of the Colorado. But 
Its existence the rivcr is not content. It continues its work, 
%n nature. cutting away the surrounding hills, until it flows 
through a great plain like the Mississippi Valley. Society, 
nke the river, seeks to adjust itself to the changing contour 
of the environment by wearing it away and smoothing it 
down until a normal relation is established between men 
and their surroundings. It accomplishes its purpose by 
means of men and women all working together, cooperat- 
ing to remove the obstacles in the path of progress. 

The process of adjustment is continuous because the 
normal is always changing. The unattainable of one age 
is the attainable of the next. Through science, invention, 
,, education, and the creation of surplus wealth, 

Its never ' ^ ' 

ending the dreams of the past, — the abolition of slav- 

character. r i r i r i j i 

ery, freedom from overwork, from cold and 
hunger, from famine and pestilence, — become the realities 
of the present. Thus the possibilities of human life are 
ever widening. 

Men and women, therefore, who have the welfare of 
society truly at heart are continually striving to shape social 
conditions so that every one may be happiest and most 
effective. If enough people work for such an end, the full 
Its pre- possibilities of society will be realized and the 
requisite. normal for that community will be attained. 
But to secure this adjustment, — to guarantee the welfare 
which is the goal of economic endeavor, — man must first 
be given opportunity. 



The Goal of Economic Endeavor 7 

TOPICS FOR CLASS DISCUSSION 

1. What economic goal have you in view ? 

2. What are your reasons for having any goal ? 

3. What should determine the choice of a goal ? 

4. Would you be willing to take a " cinch " job with a big salary ? 

5. What does "' opportunity " mean ? 

6. Should any limit be placed on opportunity ? 

7. Would not the opportunity of the few be limited if opportunity 
were provided for the many ? 

8. What is the object of maintaining unlimited opportunity ? 

9. What part can an individual play in securing adjustment ? 

REFERENCES 

Introduction to Economics — H. R. Seager. 
Elements of Economics — C. J. Bulloch. 
Elementary Economics — Ely & Wicker. 
Principles of Economics — E. R. A. Seligman. 



CHAPTER II 


Economic Ideals 


I. Efficiency ' 


I. Its meaning 


2. Its importance: 


a. To the employer 


b. To the worker 


c. To the nation 


d. To the family 


3. How secured 


II. Conservation 


I. Its meaning 


2. Its threefold aspect: 


a. Conservation of natural resources 


(i) Forests 


(2) Minerals and water power 


b. Conservation of industry 


c. Conservation of vitality : 


(i) Health 


(2) Life 



III. Prosperity 

1. Its meaning 

2. National prosperity — How China compares with 

the United States : 

a. In population 

b. In race 

c. In natural wealth 

d. In industrial development 

e. In transportation facilities 
/. In tradition 



Economic Ideals 9 

g. In controlling environment : 

(i) In regard to rivers 

(2) In variety of food 
h. In social surplus : 

(i) Its origin 

(2) Its forms 

(3) Its good results 

3. Individual prosperity 

4. The conclusion 

We have seen that the road to welfare lies through oppor- 
tunity and adjustment. To arrive at his journey's end, 
however, man must learn the lessons of efficiency, conser- 
vation, and prosperity. 

Efficiency is the Capacity to secure a Maximum Return 
for a Minimum Outlay. — Hence, one man is more efficient 
than another if, with a given expenditure of energy, time, and 
material, he can produce a larger or better result than the 
other. For example, where two men are making 

-r. 1 • 1 1 1 1 • 1-11 1 Its meaning. 

Belgian blocks, one produces sixty while the other, 
without putting forth any additional effort, makes a hun- 
dred. The first man was clumsy with his hammer; the 
second made every blow count. The second man was there- 
fore more efficient than the first. 

Every progressive employer is interested both in his own 
efficiency and in that of his workmen. In fact, the effi- 
ciency of his employees is a measure of his own capacity; 
for unless he secures a maximum return for a itsimpor- 
minimum outlay of administrative ability, he 
himself is inefficient. If he has a man soldering employer. 
lanterns who makes ten motions to the lantern, while the 
job can be done in eight, he is losing some product every 
hour of the day through this man's inefficiency. Or, if 



lo Elements of Economics 

he is using old, out of date machinery when more effective 
machinery can be secured, or if his plant is poorly ar- 
ranged, he is inefficient because he is failing to secure a 
maximum return for a minimum outlay. 

The worker is no less interested in efficiency than his 
manager, because his welfare is as equally dependent upon 
it. The workers are divided into groups whose boundaries 
To the are measured in terms of efficiency. At the 

worker. bottom are those who are living on the ragged 

edge of existence, who are always losing their positions 
because of their incompetency. Then come those who 
" stick," — who retain their positions but never rise. 
Next come those who advance, but slowly. Finally, at the 
top, are those workers who are always advancing and pro- 
gressing because they are always increasing their efl&ciency. 

Efficiency may also be considered from the standpoint 
To the of the nation. Uncle Sam may well ask, " Is 

nation. ^j^g country efficient? Are all industries doing 

efficient work ? Are pur railroads efficiently managed ? Is 
our school system an efficient one? " 

But why these questions ? 

" Because," says Uncle Sam, " there is a patch of country 
over toward the East called Germany, and a little island 
over here in the West called Japan, and both are becoming 
marvelously efficient." ^ 

And then Uncle Sam adds : "I happen to want to sell 
a few of my products over in the East and back there in the 
West, but unless I can run my country as efficiently as they 
can, I'm afraid my markets are done for." 

Finally, we may look at efficiency from the standpoint 
of the home. If it is necessary that the father be able to 
produce efficiently in order to support his children, it is no 



Economic Ideals ii 

less necessary that the mother buy and keep house efficiently 
in order that the income of the father may be used in the 
most advantageous manner. Efficiency in the jothe 
home is just as important as efficiency in the f^-^^^y- 
factory, — more so, perhaps, in view of the many bad diges- 
tions and spoiled dispositions that have grown up with 
inefficient home management. 

No matter, therefore, from what standpoint we view this 
question we see its far-reaching importance ; and it acquires 
this importance because social welfare depends jjo^gg. 
largely on efficiency. When a nation is efficient, dency is 
producing many goods cheaply and easily, it 
creates the possibility of universal prosperity in which all 
may share. Since efficiency is merely good sense plus good 
training, it can be assured only through the maintenance 
of a successful educational system. 

Conservation means Wise Use. — It is the complement 
of efficiency. Efficiency is measured by a maximum of 
result; conservation, by a minimum of waste. 

A 1 1 1 • • 11 • > 1 I*s meaning. 

Although conservation is usually associated 
simply with natural resources, i.e. minerals, forests, water 
power, etc., it really includes (i) natural resources, (2) in- 
dustry, (3) vitality. 

The conservation of natural resources began with the 
care of forests which were so ruthlessly destroyed from 
colonial times to the end of the nineteenth century. Forests 
had been literally " butchered," — all trees, young as well 
as old, being cut or destroyed. Then, too, forest fires of 
terrible proportions raged every year throughout „ 

^ c o •' ■J o Conservation 

different areas, destroying lives and property, as of natural 
well as completing the forest destruction which ^^^°^^'^^^- 
the timber butchers had begun. Gradually, as the forests 



12 Elements of Economics 

disappeared and the price of lumber rose, it became appar- 
ent that, unless the forest waste was stopped, a time would 
come, and that very shortly, when there would be no more 
wood. 

Although the idea of conservation of natural resources 
related originally to forests, it has been expanded until, 
to-day, the nation is fully aroused to the necessity of con- 
serving all of its natural wealth. Forests even if perma- 
nently destroyed might be replaced, but minerals are not 
replaceable, and water power, upon which industry must 
more and more depend as coal rises in price, may be 
monopolized and taken out of the hands of the people. 
Everywhere conservation is essential. 

Industry, too, offers opportunities for the conservation- 
ist. For years, mining companies threw carelessly aside 
the finer bits of anthracite coal which have since proved of 
such value in making steam for office buildings and factories. 
The refuse from slaughterhouses, formerly thrown away, 
Conservation is now Converted into a hundred different kinds 
of industry. q( products in great packing houses which " use 
every bit of a hog except the squeal." Hoofs, horns, hair, 
bristles, bones, blood, sinews, fat, hides, intestines, — all 
have some destination, while the refuse which remains is 
converted into fertilizer. New inventions, perfected de- 
vices, new processes of manufacture, all help in the con- 
servation of industry. 

But most important of all is the problem of the conserva- 

Conserva- ^^^^ ^^ ^^^ ^^^ womcu. As Ruskiu has well 
tionof pointed out, men and women are the most im- 

vtaty. portant resource. " There is no wealth but 

Hfe." Hence, if a nation would be truly efficient and pros- 
perous, it must use wisely the men and women of each 



Economic Ideals 13 

genera.tion. This conservation of vitality may take the 
form of conserving health or of conserving life. 

As sick people cannot do their best work, a nation of sick 
people can scarcely be described as efficient. In the United 
States it has been estimated that the average adult is sick 
in bed four or five days during each year ; while headaches, 
colds, and such minor ailments keep him from work another 
three or four days. If, then, there are thirty million adults 
at work and each one loses seven days a year, the total loss, 
irrespective of the loss of health and the cost of drugs and 
medical attendance, is two hundred and ten milHon working 
days each year. If half of this sickness is preventable, the 
nation is deliberately losing more than a hundred million 
working days annually because of its failure to adopt the 
simplest health precautions, such as clean water, pure milk, 
clean streets, airy houses, and the like. 

In the same way, the average length of life might be 
greatly increased by preserving health and preventing acci- 
dents. Perhaps half of the deaths occurring annually in 
the United States are preventable, and would be prevented 
if a wise conservation policy were adopted. At present, 
the average length of life in the United States is about 
thirty-five years. It might be seventy. 

So, in various fields, opportunities offer themselves for 
conservation of natural resources, of industry, and of vital- 
ity. One of the objects of economic endeavor is the adop- 
tion of steps that will insure this conservation. 

Prosperity signifies an Abundance of Economic Goods. — 
Hence prosperity is an indication of welfare; just 

e \ 1 . ^ 1 . Its meaning. 

as fame and honor are signs of great achievement. 

The meaning of prosperity will be made clear by a con- 
trast between China and the United States. The first, a 



14 Elements of Economics 

land of wants; the second, a land of plenty; the first, a 
nation of deficit; the second, a nation of sur- 

China and ' ^ 

United plus. China and the United States, though 

states: equally endowed by nature, represent wide ex- 

tremes of poverty and prosperity. Why is this ? 

In China there are four hundred million people, or four 

times as many as there are in the United States. If the 

whole population of the United States and forty 

Population. • i n. r 

millions more were to move into the State oi 
Texas, they would be about as close together as are the 
people in the Yang-tse-Kiang- Valley of China. 

The Chinese belong to the Mongolian race. They are 
smaller than the Caucasians physically, but the experience 
of the last twenty years in the development of Japan, whose 
people are admittedly not above the Chinese in capacity, has 
shown that intellectually they are at least the equals, if 
not the superiors, of Western races. Within a generation 
the Japanese have acquired a knowledge of in- 
dustry and science that the Western races 
labored two hundred years to develop. In the late Russo- 
Japanese war, the Japanese loss through disease was almost 
nothing, while among the Russian troops in that war, the 
American troops in the Spanish-American War, and the 
British troops in the Boer War, the death roll from disease 
was appalHng. This is only one instance in which the Japan- 
ese have bettered their instruction, proving the inherent 
capacity of the Mongolian race. 

China possesses natural wealth, which is equal, if not 
Natural Superior, to that of any like area in the world. 
■wealth. 'pj^g country is magnificently watered. The Yang- 

tse-Kiang, three thousand miles long, is navigable to ocean- 
going vessels for eleven hundred miles. The Hoang-Ho, 



Economic Ideals 15 

two thousand six hundred miles long, is connected with 
the Yang-tse-Kiang by the Imperial Canal, and these two 
rivers and the canal form one of the finest water systems in 
existence. The climate of China is very similar to that of 
the United States. Minerals exist in abundance. It is 
believed that the bituminous and anthracite coal fields of 
China contain as much coal as those of all the other countries 
of the world combined. 

In Chinese manufacturing, machinery has not generally 
replaced human energy; consequently only those things 
which will sell at a high price, — such as silks and fabrics 
of various kinds, — are generally made. In spite of the fact 
that the people are apparently so capable and so industrial 
numerous and the natural resources so abun- development. 
dant, the industries of China are practically undeveloped. 
Despite its native abundance, iron is imported, although 
proper methods could produce iron in China as cheaply or 
more cheaply than in any other place in the world. Coal 
is mined in very limited quantities and by the use of such 
inefficient appliances that only the rich can afford to buy it. 
The transportation facilities except on the waterways are 
so poor that a bulky commodity, like coal, cannot be shipped 
for any distance before its price has become prohibitive to all 
except the most wealthy. 

Here, then, is a picture of a land full of capable people, 
abounding in natural resources, but without industry, and 
therefore in constant danger of want. Crop TransDorta- 
failure in a district remote from water transporta- tionfadU- 
tion, means starvation. There are few railroads ; 
the roads are bad. People starve within a few hundred 
miles of an abundant supply of food, because there are no 
means of transporting bulky commodities. 



1 6 Elements of Economics 

It may seem inconclusive to say that the backward con- 
dition of China is due to a lack of organized industry, 
since the absence of industry is due, in large 
measure, to a bHnd worship of custom. " My 
father used this tool " is a conclusive argument in the ears 
of the son, and he uses the same tool without question. 
The people of the United States, however, have always 
developed industry irrespective of tradition, because they 
know that only through the breaking of tradition can 
progress be made. 

China exists in a state of deficit and the United States in a 
state of surplus, although in both countries there are capable 
populations and great natural resources. What is the cause 
of this difference between two nations so similarly situated ? 
Briefly stated, it is this : the people of the United States have 
„ , , learned to control their environment, and the 

Control over . ^ ' 

environ- Chinese have not. Instead of letting nature 
*"^"'' dominate them, the people of the United States 

have learned in a large measure to dominate nature. If the 
Mississippi overflows its banks, as it sometimes does, the 
people are not drowned by the tens of thousands, because, 
-long before the break occurs or the water reaches a town, the 
news of the coming flood has been sent over telegraph wires 
and the people are prepared to meet it or else have left for 
places of safety. As a rule, however, the Mississippi is not 
allowed to overflow its banks, although it is" in exactly the 
same position as the Hoang-Ho, flowing in a channel which 
is above the level of the surrounding country. 

The control of Americans over their environment may be 
seen in another direction. The Chinese depend upon one 
crop, — rice. If the rice crop fails, the Chinese starve. 
The people of the United States, however, do not depend 



Economic Ideals 17 

on one crop. A great part of their food is derived from 
wheat ; but through the development of the milling indus- 
try, the beef industry, the canning and preserving industry, 
and a score of others, it has been possible to live successfully 
through a time of shortage in one crop without being in im- 
mediate danger from starvation. 

The United States, unlike China, has developed a social 
surplus. All of the products of industry are not sodai 
consumed at once, — part of them is stored up to ^^^P^^^- 
assist in future production. The development of the social 
surplus is one of the great steps in civilization. 

When the savage of Australasia found a whale, which had 
drifted ashore in a storm, he at once summoned his friends 
and neighbors and had a banquet. Sometimes they ate for 
a week, and sometimes longer, and sometimes they died 
from overeating; but they ate until all of the whale was 
gone and then eked out an existence on berries and such 
food as they could find until the gods should send them 
another whale. Americans, however, have a different 
method of treating food. When a large amount of food, 
or its equivalent in money, is secured by a man, he does 
not eat or drink it up at once, but puts by a portion of 
this wealth for a " rainy day." Thus he creates a social 
surplus. 

As many people have been saving in this way, great masses 
of surplus wealth have been stored up in the form of rail- 
roads, factories, machine shops, houses, and public build- 
ings ; and these things accruing year after year serve to 
increase the productive efficiency of the people and to 
render them more capable of supplying themselves with the 
goods that they desire. Not only does this surplus, stored 
up and added to year after year, guarantee the nation against 



1 8 Elements oj Economics 

starvation and absolute want, but in addition it supplies 
men with the comforts and pleasures of life. 

The important results of this social surplus may be seen 
in the problem of food. While the Chinese live upon rice, 
people in the United States are able to secure all kinds of 
nourishing food. They have meat, which is a luxury in 
China ; they have sugar in large quantities, and an abun- 
dance of fruit and vegetables in summer and winter. Food 
is provided in variety as well as in abundance. Mechanical 
inventions, one form of social surplus, have increased and 
varied the consumption of food in the United States. 

The presence of a social surplus means national prosperity. 
However, since the real end of national prosperity is indi- 
vidual prosperity, national wealth is of little real value 
unless it is distributed among the individuals composing 
Individual the nation. The United States is immensely 
prosperity, wealthy; great quantities of additional wealth 
are produced each year ; increasing capital is enlarging 
the possibilities of wealth production. It is not enough 
to state that the country is rich. What becomes of these 
riches? Dickens draws a sharp contrast between national 
and individual prosperity. In " Hard Times," Mr. Mc- 
Choakumchild, the schoolmaster, who is teaching political 
economy, says: "Now this schoolroom is a nation and 
in this nation are fifty millions in money. Girl number 
twenty, is not this a prosperous nation, an3 ain't you in 
a thriving state? " And girl number twenty, the daughter 
of a circus rider, replies that she cannot say whether or not 
it is a prosperous nation and whether or not she is in a pros- 
perous state until she knows who has the money and whether 
any of it is hers. 

The United States cannot be truly prosperous and we as 



Economic Ideals 19 

individuals cannot be well off unless all of us share in the 
national prosperity. The real test of prosperity Theconciu- 
must be, not national wealth, but individual ^^°^' 
welfare; and to attain this welfare we must constantly 
be guided by the ideals of efficiency and conservation. 

TOPICS FOR CLASS DISCUSSION 

1. What is the dictionary definition of an ideal ? 

2. What is your definition of an ideal ? 

3. What are economic ideals ? 

4. How many economic ideals can you name ? 

5. Of what value are economic ideals to the individual ? 

6. To the social group ? 

7. What are your reasons for wishing to be efficient ? 

8. Do you believe in conservation ? 

9. If conservation benefits the future only, how can it be justified ? 

10. Why are national prosperity and individual prosperity not 
synonymous ? 

11. Which of the three economic ideals is most necessary in the 
United States to-day ? Why ? 

REFERENCES 

Social Forces — E. T. Devine. 

The New Basis of Civilization — S. N. Pdtten. 

Social Adjustment — Scott Nearing. 

Conservation of Natural Resources in the United States — C. R. Van 

Hise. 
State Insurance — F. W- Lewis. 



PART II 
CONSUMPTION OF WEALTH 

CHAPTER III 

Problems of Consumption 

I. The economic life 

1. Its ideal 

2. How to measure this ideal : 

a. Through the consumption of wealth : 
(i) The meaning of consumption 
(2) Consumption necessary to adult life 

h. Through the production of wealth : 
(i) Why production is vital 
(2) The economic life two-sided 

II. Wants and their satisfaction 

1. Standard of living: 

a. What it means 

b. How it depends upon : 

(i) The wants of individuals 
(2) The cost of commodities 

2. Wants : 

a. Meaning 

h. Kinds ^ 

3. Utihty: 

a. Meaning 

b. Kinds : 

(i) Natural utilities 

(2) Place utihties 

(3) Time utilities 

(4) Form utilities 

c. Law of utility 



Problems of .Consumption 21 

III. Principles governing consumption 
I. Importance of consumption 
2.' Principles of consumption : 

a. Consumption should be regular 

b. Consumption should be varied : 
(i) Disadvantages of sameness 
(2) Advantages of variety 

c. Result of stability and variety 

The Economic Life. — Life has a distinctly economic 
background. Food, clothing, shelter, and recreation, upon 
which life so intimately depends, are the products of eco- 
nomic endeavor. All life is not economic; there is more 
than the economic in life ; and yet all Hfe is dependent upon 
the economic for its continuance. 

When therefore we speak of the economic life we mean 
that hfe which has welfare as its goal. Welfare may be 

social or individual, and it is possible that the 

. Its ideal, 

two may not always harmonize. Socially speak- 
ing, welfare is increased by the adoption of universal edu- 
cation ; but it may happen that the educational system is 
unsuited to one individual in the social group. The idea 
of social welfare must not exclude individual welfare. 

There are, perhaps, two measures of this welfare. The 
first, a measure in terms of the consumption of jjo^meas- 
wealth, conceives of welfare as resulting from the ured : 
, satisfaction of economic wants. The second, a Through 

J . . , , consumption. 

measure in terms of the production of wealth, 
conceives of welfare as resulting from surplus wealth. 

The consumption of wealth is the using of economic goods 
to satisfy human wants. Each child is a consumer. For a 
period ranging from ten to twenty-five years, the children 
born into American homes are not producing economic goods 



22 Elements of Economics 

at all. During this entire period of youth they are main- 
tained through the surplus created by the other workers 
of the community. Every adult while preparing to produce 
has passed through this era of consurnption. When this 
consumption stage is prolonged, when the child's preparation 
for life is very complete, when efficiency has been assured 
by a sufficient supply of economic goods during the imma- 
ture period, individual welfare is conserved and social wel- 
fare promoted because the long period of consuming with- 
out producing will probably result in more efficient adult 
production. 

If youth has been wisely spent, the years of adult life 
should show a large surplus of production over consumption. 
This surplus, which the individual owes to the community 
for his early years of maintenance, is used to support the 
children who, in the next generation, devote many years 
to consumption and training and thus guarantee their own 
efficiency in manhood. The economic life may be lived 
by the adult, however, only so long as an adequate supply 
of consumption goods is provided. Consumption provides 
the basis for youth and development, but it is no less essen- 
tial to efficiency in adult life. 

Goods cannot, however, be consumed until they a,re pro- 
duced. Men cannot eat without working. Children can- 
not be kept in school until they are eighteen, consuming 
constantly but never producing, unless some of the adult 
Through produccrs are creating more wealth than they 
production, thcmsclves are consuming. The economic life 
on its productive side, therefore, presupposes that the pro- 
ducing members of the community are producing enough, 
in addition to the amount that they actually consume, to 
enable the immature members of the community and those 



Problems of Consumption 23 

beyond the period of active work to maintain themselves. 
Differently expressed, each producer must create a surplus 
over the amount which he consumes. 

The economic life is much more than consumption. It is 
consumption plus production. While human wants are 
satisfied directly through consumption, it is through pro- 
duction that consumption is made possible. There is in this 
concept of the economic life no place for idlers. Every 
normal adult man or woman must be a producer as well as 
a consumer, because the individual who accepts a return 
where no service has been rendered inevitably loses his self- 
respect. Each member of an economic society will render 
the community such service as he can render, receiving in 
return from birth to death at least enough consumption 
goods to maintain life and efficiency. In this way the ideal 
of the economic life will be approached. 

Wants and Their Satisfaction. — The consumption of 
wealth is a far better measure of welfare than the production 
of wealth because the amount of consumption can be so 
effectively determined in the individual case, standard of 
This measurement of the consumption of a par- living: 
ticular individual is called his " standard of liv- ^^^ meaning., 
ing." The amount of goods which an individual consumes 
depends upon his income, the character of his wants, and 
the cost of satisfying them. 

Wants vary with the individual; so that the supply of 
economic goods which would suffice in the case of one indi- 
vidual or family would not suffice in the case „„ 

What a 

of another. If a man is fond of good pictures, standard 
his wants are extremely expensive ; if he likes '^"^^■^'^^ °^- 
books, they are only less so ; while, if he is satisfied with 
magazines and newspapers, they are cheaply supplied. 



24 Elements of Economics 

Likewise, food varies from individual to individual and from 
family to family ; as does also the demand for clothing and 
housing. A standard of living, therefore, depends upon the 
number and character of wants, which become more and 
more complex as civilization advances. 

The cost of living also plays an important part in deter- 
mining the amount of goods which a man consumes. A 
man with a $2000 income, who pays fifty cents a pound for 
butter, is not so well off as a man with a $1500 income who 
buys the same butter for twenty-five cents a pound. The 
purchasing power of income is a very important factor in 
determining the standard of living. 

Wants necessarily play a large part in the shaping of the 
economic life. A want is a desire for a " good " ; a good, is 
an object or commodity which can be used in consumption. 
A want may be either elementary or acquired. Elementary 
wants are natural, including the wants for food, shelter, 
Wants: ^^'^ clothing. In a greater or less degree, man 
Meaning sharcs thcsc wants in common with animals. 
and kinds. Acquired wants are part of our social heritage ; 
that is, they have come down to us as a result of the pro- 
cess of civilization. Among them are included the wants 
for bathtubs, furniture, paved streets, and the like. The 
natural wants are desires for the necessaries of life ; the 
acquired wants are desires for its comforts and luxuries. 

All economic wants, whether elementary ©r acquired, are 
satisfied by goods. Each good has the capacity to satisfy a 
particular want. Food satisfies hunger; drink quenches 
utilities : thirst ; coal provides warmth ; shelter furnishes 
Meaning. protection. Thcsc qualities in economic goods 
which satisfy human wants we call utilities. Utility must 
not be confounded with usefulness ; for it is perfectly pos- 



Problems of Consumption 25 

sible for a commodity to possess utility without being useful. 
A diamond pin may not be useful, but it may satisfy one's 
desire for show. In economics, the word utility signifies 
the presence of some want-satisfying quality. 

UtiHties are of four kinds: (i) natural; (2) place; (3) 
time ; and (4) form. 

Natural utilities exist in the good because of its inherent 
nature. Coal, for example, though embedded in the vein, 
possesses utility. To be sure this utility cannot be made 
available without an intermediary process called mining; 
but the coal, like many other natural goods, possesses in 
itself the power to satisfy wants. 

A place utility is created when economic goods are taken 
from a place where they are not needed to, a place where 
they are needed. Transportation creates place utilities in 
economic goods. Cotton in certain parts of the South and 
corn in certain parts of the West are of such low utility that 
they are sometimes burned for fuel, but the transportation 
of either commodity to Massachusetts greatly enhances its 
want-satisfying qualities. The utilities in the goods have 
been increased by transportation because cotton or corn 
will satisfy more wants in Boston than in Texas or Kansas. 
Transportation has therefore created place utility in these 
goods. 

Time utilities are created by holding economic goods 
from the time they are not wanted till the time they are 
wanted. Ice in January is seldom wanted and therefore 
possesses little utility, but the same ice stored until July 
is frequently wanted and therefore possesses great utility. 
This increase in utility due to the lapse of time is called 
time utiHty. 

Form UtiHty, created by a change in the appearance or 



26 Elements of Economics 

inherent qualities of a good, is the most usual of the four. 
A chair in the furniture factory possesses a greater want- 
satisf3dng capacity than the boards in a lumber yard. The 
clay in the clay pit will not satisfy nearly so many wants as 
the clay pressed irjto a brick and baked, ready for build- 
ing operations. Form utilities are the creations of manu- 
facturing processes ; hence, each increase in manufacturing 
augments the total of form utiHties. 

After utilities have been created or augmented in a good, 
this good does not possess the same want-satisfying quality 
under all conditions. Its utility will vary with the individ- 
ual and with the amount and kind of good. Goods which 
provide the necessities of life possess more general utility 
than goods which provide only the luxuries. A. coat pos- 
sesses more utility for a cold man than for a warm one. 
This variation in utility gives rise to the formulation of 
the law of utility, — increasing amounts of a good mean 
a decreasing utility in each amount consumed. 

Suppose you have been taking a long tramp and are stroll- 
ing along a hot country road. You are tired and thirsty 
and long for some luscious fruit to refresh you. The thought 
of an apple comes into your mind and you feel an intense 
want. If you could get just one apple, it would possess very 
great utility for you. As you trudge along you find, quite 
unexpectedly, that your longing is about to be satisfied. 
Law of A farmer hails you, and being l(5aded down with 

uHiity. apples, offers you one. You thank him and eat 

the apple with extreme satisfaction. He offers you another, 
and still another; and by this time your want has been 
almost satisfied. You have enjoyed each apple, but in a 
less and less degree, because every additional apple affords 
less satisfaction than the preceding one. Finally, after 



Problems of Consumption 27 

you have eaten five or six apples, you have no desire for 
any more, — so far as you are concerned they cease to pos- 
sess utility. In fact, if you were to persist in consuming 
apples, pain and distress would ultimately result ; that is, 
to you, apples which a few moments before possessed utility 
would now possess disutility. 

On this experience, therefore, the economist bases his law 
that, if an economic good is supphed in endless quantity, 
the point will ultimately be reached where it ceases to 
possess utihty and, if consumed beyond that point, it will 
possess disutility. 

Principles governing Consumption. — Wants are satisfied 
through the consumption of economic goods. The impor- 
tance of consumption, therefore, will depend upon the 
number, character, and variety of wants. In primitive 
times, when wants were few and simple, the consumption 
of the uncivilized man was limited to his ele- importance 
mentary wants for food, shelter, and clothing, ofconsump- 
With the progress of civilization, wants are con- 
stantly increasing, and the problems of consumption, there- 
fore, become correspondingly complex. The increase in 
number and variety of wants, which has accompanied ad- 
vancing civilization, results in greater and more varied 
consumption provided a system has been established which 
simultaneously increases production. The principles of 
consumption must therefore play an important part in any 
discussion of economics. 

Society is slowly learning that to receive the highest 
benefit from the consumption of wealth, the individual 
must consume regularly. Primitive man, depending on 
hunting and fishing for his livelihood, starved one day 
and gorged the next. Modern man, depending on a well- 



28 Elements of Economics 

organized system of industry, is fed and clothed from day 
itsprin- to day and does not spend one day in misery 
cipies: ^^^ ^YiQ next in happiness. In this way, by 

tionThouid maintaining a constant rather than an inter- 
ne /-egM/ar. mittent supply of consumption goods, men are 
made more efficient producers. 

The first step in progress was to make certain a steady 
supply of consumption goods : the next step was to render 
that supply more varied. This idea of variety in consump- 
tion may be best seen by calling to mind again one point of 
difference between China and America. The 

Consump- 
tion should Chinese have practically no variety in their 
be vaned. consumption of food. Ricc is their staple ; and 
their dependence upon this single article of food has two 
distinct disadvantages. In the first place, workers get no 
particular pleasure out of this monotonous diet ; and, in the 
second place, the nation starves if the rice crop fails. 

America, on the other hand, is not dependent on one 
staple. The exclusive diet of rice or wheat has been re- 
placed by a varied diet of fresh meat, eggs, butter, sugar, 
canned vegetables and fruits, bread and bread products, 
and fresh, salt, and canned fish. This variety in consump- 
tion has a double advantage. It means, first of all, that if 
one crop or one source of food supply fails, the nation will 
not starve. It means, further, that this varied diet contains 
food elements which will give the individual more pleasure 
in his consumption and will therefore increase his welfare. 
Thus, the American workman, whose food consumption in- 
cludes meat, vegetables, fish, sugar, bread, butter, and the 
like, fives a more enjoyable life and is a far more efficient 
producer than the Chinese laborer whose diet consists 
solely of rice. 



Problems of Consumption 29 

With stability and variety in consumption comes the 
basis for economic welfare, provided this stability and 
variety exist throughout the various classes in the ^^^^^^ . 
community. Hence, in order to determine the stability 
extent of welfare in the United States, it becomes °'^ '"'^^^^ ^' 
important to inquire what standards of consumption the 
members of American society are able to maintain. 

TOPICS FOR CLASS DISCUSSION 

1. What are the chief obstacles which prevent the American people 
from living " the economic life " ? 

2. If you could, would you do nothing always ? Why ? 

3. Do people actually expend their incomes so as to get the maxi- 
mum utihty, judged by a standard they would admit to be morally 
sound ? 

4. Could a nation better do without money, roads, or food ? 

5. What is the chief advantage secured by varying consumption ? 

6. How varied is your own diet ? (Test by keeping a schedule for 
a week or more.) 

7. What advantages have followed the introduction of sugar as a 
cheap article of food ? 

8. Show the benefits that will result from an extensive use of 
tropical fruit and vegetables. 

9. How wiU the consumption of breakfast foods affect the people 
of America ? 

10. What is the relation between varied consumption and produc- 
tion? 

11. What advantage has a community in which consumption is 
varied over a community in which it is unvaried ? 

12. Are our wants wholly under the control of our reason ? Do we 
always desire those things which are beneficial ? Can you give cases 
where wants seem to flow from the action of habit ? 

13. Are you able to satisfy all your wants? Does law or social 
custom prevent you in some cases ? Would you have sufficient pur- 
chasing power to do so in any case ? 

14. Suppose you had $ioo to spend. Would you spend all of it at 



30 Elements of Economics 

once ? What would you buy ? Would you buy the same things at 
all times and under all circumstances ? 

15. If you had $200 to spend, would you include among your pur- 
chases all the things you would have bought for $100 ? 

REFERENCES 

The Consumption of Wealth — S.N. Patten, 
Introduction to Economics — H. R. Seager. 
Principles of Economics — E. R. A. Seligman. 
Elements of Economics — C. J. Bullock. 



CHAPTER IV 

The Problem of the Standard of Living 

I. Difficulty of the problem 

1. Cost of living in city and country varies : 
a. In regard to rent 

h. In regard to food 

c. In regard to clothing 

d. In regard to fuel 

e. In regard to incidentals 

2. Cost of living in different cities varies 

II. The elements in a standard of living 

1. What the elements are 

2. Their relative importance as shown by a New York 

study : 
a. Amount spent for rent 
h. Amount spent for food 

c. Amount spent for clothing 

d. Amount spent for fuel and transportation 

e. Amount spent for other purposes 

3. The conclusion 

The Problem Difficult. — Individual prosperity and indus- 
trial efficiency are dependent on the maintenance of a 
normal standard of living. It is an easy matter to say that 
a proper standard of living is determined by the amount of 
economic goods necessary to maintain the highest industrial 
efficiency, but a discussion of the price and character of these 
goods as well as of the specific goods necessary to maintain 
efficiency makes the problem an involved one. 

Wages is not an accurate measure of the standard of 

31 



32 Elements of Economics 

living, since the value of wages depends upon the amount 
Costofiiv- of economic goods which wages will buy. When 
ing vanes : prices are high, a given wage will buy less than 
when prices are low. A standard of living varies therefore 
with the cost of Uving. But the cost of living itself is 
difficult to determine accurately because of differences 
between city and country conditions. 

First of all, there is the question of rent. In the tene- 
ments of New York City a man pays six dollars a month for 
!n regard a single room. In many country towns this 
to rent. gj^ dollars a month would secure a fairly comfort- 

able four- or five-room wooden house. The six dollars 
which would provide bare necessities in the city would se- 
cure comforts in the country. 

The price of food, the most important item in maintaining 
a proper standard of living, varies in city and country with 
the character of the commodity. The price of meat is about 
In regard the Same in both places. On the other hand,: 
to food. vegetables are considerably lower in the country, 

the price paid for them being the equivalent of the city 
price with the cost of freight, the charge of the commission 
merchant, and the profits of the retailer deducted. How- 
ever, the prices of canned goods, bread, cakes, and crackers 
differ little in city and country districts. Things which are 
produced in the country are much lower in price there than 
in the city ; while things which are produced in factories 
are about the same price in city and country. 

The cost of clothing would vary little in city and country 
districts were it not for the presence in the city of rich people 
In regard who drcss extravagantly. The standard of dress 
to ciothtng. which they set becomes the conventional or 
fashionable standard, and it must be followed by all who 



The Problem oj the Standard of Living 33 

would be "in style." The result is an expenditure for 
trumpery and cheap finery which is unknown in the country. 

Another important city item is the expenditure for fuel ; 
but in the country fuel is almost a negligible quantity be- 
cause wood, which is very generally burned, can /„ regard 
be easily and cheaply secured. Hence the fuel '"/"s^- 
supply is much more cheaply secured in the country dis- 
tricts and small towns than it is in larger towns and cities. 

Finally, the country districts do not furnish so many 
opportunities for spending money as do the city districts. 
There is little carfare to pay and the temptation /« regard to 
to buy in stores is greatly lessened by the absence incidentals. 
of display advertising in store windows. Therefore less 
will be spent in the country for incidentals. 

Again, the cost of living varies in cities themselves. 
Individual items of expense are much greater in some cities 
than in others. For example, rents are much higher in 
New York than in Philadelphia. While one indifferent 
item may offset another, these differences must "*^®^- 
be taken into account when estimating the cost of living in 
different cities. The estimation of a standard of living is a 
problem of serious magnitude. 

The Elements in a Standard of Living. — A standard of 
living to accomplish its purpose of securing and maintaining 
efficiency should provide for: (i) the necessaries of life, 
including housing, food, clothing, fuel and -what the 
light, and transportation ; (2) recreation, includ- elements 
ing proper provision for health and hygiene, 
amusements, and books ; (3) voluntary subscriptions for 
insurance, clubs, trade unions, and regular savings ; 
(4) unusual expenditures for medicines, physicians, and the 
like, as well as expenditures required for household furniture. 



34 Elements of Economics 

Almost all the expenditures of a workingman's family are 
made for the necessaries of life, of which housing and food 
are by far the most important in a modern city. In Chapin's 
New York study, which contains the standard American 
material on the subject, the expenditures for housing are 
Amount classified by incomes and nationaHties. Those 
spent for families receiving an annual income of less than 

$700 were found to spend one fourth of it for 
rent; the families having an income between $700 and 
$1000 spent one fifth for rent ; while those families receiv- 
ing more than $1000 paid one sixth of the total income for 
rent. After a careful analysis of the number of rooms which 
each family used, the New York investigators decided that an 
" efficiency " standard of housing was not generally secured 
by the families receiving less than $1000 annual income. 

The largest single factor in the family budget is food and, 
unlike rent, the expenditure for food is almost constant. In 
the New York families, from forty to forty-five per cent of 

the income is expended for this one item. In the 

For food. . .,. . 1 • r 1 rts 

lamihes with mcomes of less than $1000, from 
$200 to $350 is spent for food; that is, from four to seven 
dollars per week. The analysis of the food expenditures 
was very thorough. The family budgets were examined by 
a food specialist, the values of the various foods consumed 
were ascertained, and, in the case of each family, a decision 
was reached as to whether the family was err was not under- 
fed. In the famines included in the New York study under- 
feeding practically ceased when an income of $900 a year 
was reached. 

Clothing was found to constitute a surprisingly small item 
in the budget of a workingman's family. The families 
with incomes under $800 spent less than $100 for clothing, 



The Problem of the Standard of Living 35 

while those with an income of more than $800 spent from " 
$100 to $150 for the same purpose. After a careful study 
of the problem, the New York investigators 

1 1- •! T • -\ ir For clothing. 

concluded that a normal family livmg on Man- 
hattan Island could clothe itself for $105 per year. This 
allowed $33 for the man, $23 for the woman, $12 for each 
boy, $15 for each girl, and $10 for laundry. That this 
expenditure is not excessive is shown by the following list 
of articles designed to clothe a boy for a year: Two hats, 
$.50; one overcoat, $2.50; one suit, $2.50; one' pair of 
trousers, $.50; two shirts, $.50; summer underwear, $.50; 
winter underwear, $1.00; six pairs of stockings, $.50; two 
pairs of shoes, $2.00; repair of shoes, $1.25 ; mittens, $.25 ; 
total, $12.00. 

The expenditures for fuel and light are comparatively 
small, varying from three and one half to six per cent of the 
total family incomes; i.e., $25 to $65 annually. The re- 
maining item is transportation. In a city like pg^fugiand 
New York, this is an important factor. In most transpfirta- 
of the families reporting any transportation 
expenditure, it was found that this item fell between $20 
and $40 per year. 

Expenditures for recreation vary considerably. In the 
lower income groups they are very small, but they rise 
rapidly with the increase of income. The same thing is 
true with the voluntary disbursements and the p^^ ^^^^^ 
extraordinary expenditures. For furniture, for Purposes. 
example, the average amount expended by the families 
with incomes between $600 and $700 was $6.22 per year; 
while even among the families with incomes between $1000 
and $1100, the average expenditure for this purpose was 
only $12.89. 



36 Elements of Economics 

Whatever may be the ultimate conclusion regarding the 

exact amount of income necessary to maintain efficiency in 

any locality, the necessity of providing an effi- 

Conclusion. . . ^ ^ r ^^ • • t^ -t 

ciency standard of livmg exists. Families — 
men, women, and children — require a certain minimum 
of the necessaries of life. Such a minimum, whatever it 
may cost, should, in the interest of welfare and efficiency, 
be assured every member of the community. 

TOPICS FOR CLASS DISCUSSION 

1. In your opinion, what is the most fundamental reason for 
maintaining a proper standard of living in a community ? 

2. What is the effect of maintaining a high standard of living? 

3. Do economic wants increase more quickly than the standard of 
living ? 

4. What would be the effect upon standards if the poorest third of 
our city populations could be moved on to farms ? 

5. What would be the effect on the United States of providing a 
uniform minimum standard of living for all ? 

6. What is the vdtimate effect on the individual of living below the 
normal standard ? 

7. Why should the community at large be interested in maintaining 
a high standard of living ? 

8. What is the force most to be relied on to maintain a proper 
standard of living ? 

REFERENCES 

The Standard of Living Among Workingmen's Families — R. C. 

Chapin. 
Wage Earners' Budgets — L. B. Moore. 
A Living Wage — J. A. Ryan. 
Social Adjustment — Scott Nearing. 
Misery and Its Causes — E. T. Devine. 



CHAPTER V 

Wages and Standards 

I. The wage required to maintain efficiency 

1. What the wage should be : 

a. In New York 

b. In Buffalo 

c. In Homestead 

d. The conclusion 

2. What the wage really is : 

a. Conclusions drawn from the table 

b. A final summary 

c. The result 

11. Difficulties in measuring wages 

1. Prices affect wages 

2. Real wages different from money wages 

3. Average wages used as a basis : 

a. An example 

b. Why they are misleading 

c. How the " weighted " average is secured 

4. Wages and prices : 

a. Recent fluctuations in both (1890) 

b. The rise in prices : 

(i) Those who suffer most 
(2) Causes of the rise in prices 

The Wage required to maintain Efficiency. — Several 
careful studies have been made recently in an attempt to 
determine exactly what amount will maintain the .^j^^^ ^j^^ 
efficiency of a " normal " family consisting of a wage should 
man, a woman, and three children under fourteen 
years of age. These studies are remarkably uniform in 
their conclusions for the various cities under consideration. 

37 



38 Elements of Economics 

The most satisfactory American study in the standard 
of hving was made in 1907 and 1908 in the city of New 
York. An analysis of the family budgets of 391 work- 
ingmen's families, together with an exhaustive study of food 
In New values, housing, clothing, and the like, led the in- 
D^ff'; J vestigators to conclude that: "An income of 

Buffalo, and ^ 

Homestead, nine hundred dollars probably permits the main- 
tenance of a normal standard, at least so far as the physical 
man is concerned. . . . Whether an income between eight 
hundred dollars and nine hundred dollars can be made to 
sufi&ce is a question to which our data do not warrant a 
dogmatic answer." In the same report appears an analysis 
of one hundred workingmen's families in Buffalo, with the 
conclusion that before they are applied to Buffalo, the New 
York figures should be reduced by one hundred and fifty 
dollars. In Homestead, a suburb of Pittsburgh, a recently 
completed study covers ninety-nine families, from whose 
budgets the investigation concludes : " It is not until we 
cross the twenty-dollar [a week] mark that we feel that the 
family is well provided for and needs, if provident, have no 
fears for the future." 

The available authorities are therefore in practical agree- 
ment that an " efficiency " standard of living can be main- 
tained in the cities of the Middle States on an annual 
Thecondu- income ranging from $750 to $900, varying 
Stan. with the family, the nationaHty^ and the city. 

Accepting these conclusions, we must next inquire how the 
wages actually paid compare with this " efficiency " stand- 
ard ; because the relation of workingmen to " efficiency " 
standards is, in the last analysis, measured through the 
wages they receive. 

How many men in the United States earn from $750 



Wages and Standards 



39 



to $900 annually? In other words, how many workmen 
receive sufficient wages to enable them to rear three 
children, — to give them enough nourishing food, warm 
clothes, a decent house, an education up to 

' ' , . ^ What the 

their fourteenth year, and a legitimate amount wage really 
of recreation? An answer to this problem is *^" 
best sought in the following statistical table which, for 
brevity, covers only five income groups, for each one of 
which the cumulative percentages are set down : — 

Cumulative Percentages of Males Receiving Certain Classi- 
fied Weekly Earnings, Compiled from Labor Reports, 
1908-igio 





Massa- 


New 






Bethlehem 




Classified 
Weekly 
Earnings 


chusetts 

igo8 

(21 Years 


Jersey 

igog 

(16 Years 


Kansas 

igog 

(16 Years 


Wisconsin 

igo6-7 

(All 


Steel 
Works 
igio 


of the U.S. 
igog 




AND over) 


AND over) 


AND over) 


Males) 


(All 
Males) 


Males) 




% 


% 


% 


% 


% 


% 


Under $8 . . . 


12 


18 


8 


12 


8 


22 


Under $12 . . 


52 


57 


46 


59 


60 


51 


Under $15 . . 


72 


74 


70 


89 


75 


78 


Under $20 . . 


92 


91 


91 


98 


92 


92 


I20 and over 


8 


9 


9 


2 


8 


8 


Total employed 


350,118 


204,782 


50,720 


128,334 


9184 


1,502,823 



A study of the above table shows that half of the adult 
males working in the industrial sections of the United States 
receive less than $600 per year ; that three quarters are paid 
less than $750 annually, and that less than one tenth earn 
$1000 per year. These figures are not accurate, however, 
since they are all gross figures, including unemployment. 



40 Elements of Economics 

They should be reduced by, perhaps, twenty per cent, since 
What the that reduction would make all due allowance for 
table shows, unemployment varying with the year, the loca- 
tion, and the industry. Making, therefore, a reduction of 
one fifth in these gross earnings, it appears that half of the 
adult males in representative sections of the United States 
are earning less than $500 a year ; that three quarters of 
them are earning less than $600 annually ; that nine tenths 
are receiving less than $800 a year, while less than one- 
tenth receive more than that figure. 

Briefly summarized, the available wage data lead to the 
A final conclusion that the annual earnings . (unemploy- 

summary. ment of twenty per cent deducted) of adult males, 
employed in sections east of the Rockies and north of the 
Mason and Dixon Line, are distributed over the wage scale 
as follows : — 

Annual Earnings Addlt Males 

Under $325 xV 

Under 500 i 

Under 600 i 

Under 800 1^ 

If we accept as accurate the standard of living studies 
which set the " efficiency " minimum wage for a 

The T€sutt 

man, wife, and three children under fourteen 
years of age at $750 to $900 per year, it appears that a very 
large group of American wage earners is unable to support 
itself on this basis of efficiency. 

Difficulties in Measuring Wages. — Since wages, as meas- 
ured in terms of money, is not an end in itself, but merely 
a means to welfare, it matters little how much money wages 
a man actually receives. The really important point is not 



Wages and Standards 41 

how much money he gets, but how many goods he can buy. 
Thus, the purchasing power of wages is the real determinant 
of a standard of living. 

* Unless accompanied by a statement of prices, money 
wages is not even an approximate test of a standard of 
living. This is a bit of knowledge which many an immigrant 
learns each year from bitter contrast between prices in 
Europe and prices in the United States. He How prices 
hears, to his dehght, that if he leaves his fifty- ^^^'^^ wages, 
cents-a-day job in central Europe and goes to Chicago, he 
can easily earn $1.50 for ten hours of work. The difference 
in wages appeals strongly to him, so he hastens to the New 
World. But once there he finds to his dismay that, while 
wages are three times as high as they were at home, prices 
are also three or perhaps four times as high as they were 
in Europe; so that, instead of being better off on $1.50 
a day, he may actually get less for his $1.50 than he did 
for the fifty cents a day in Europe. 

There is thus a real difference between money wages and 
real wages. Money wages are wages actually paid in dol- 
lars and cents; while real wages represent the p . 
purchasing power of money. The discussion of and money 
the cost of living therefore centers about real ^^^®^* 
wages. How many economic goods can a man really get in 
exchange for his wage? The answer to this question 
reveals his standard of living. 

In most of the discussions on wages and the cost of living 
the wages considered are average wages, just as the prices 
considered are average prices. But average wages are not 
really true tests of wage conditions. Let us see, therefore, 
just what average wages represent. An average is a mean 
between two or more diverse numbers or instances. This 



42 Elements of Economics 

thought may be more clearly brought out by an illustration. 
Two groups of men are working, — ten carpenters at $3.00 
Average per day and twenty laborers at $1.50 per day. 
wages. j^ ^j^^ carpenter helped the laborer to pay his 

example. landlord and grocer, an average would be a fair 
statement of wages. Nothing of the kind occurs, however, 
since the laborer with his $1.50 must meet all bills, while 
the carpenter to meet like bills has $3.00 per day. Thinking 
of an " average " wage of $2.25 one naturally says, " Yes, 
they are fairly well off." But " they " meaning nobody, 
the statement is absurd unless we know that, in reality, the 
carpenters are comparatively well off; the laborers, com- 
paratively badly ofif. 

The average in this case merely misleads, since neither 
the carpenter nor the laborer is receiving $2.25 per day. 
The average wage is an abstract concept, mathematically 
Why they are corrcct, but socially misleading. It represents 
misleading, neither purchasing power nor the wage actually 
paid, but a wage falling somewhere between the various 
groups of actual wages. 

In many calculations, average wages alone are employ- 
able, as in the comparison of wages and the cost of living ; 
j^g but it is possible to employ a '■ weighted " 

" weighted " average and thus overcome at least a part of the 
error in the mathematical average. To secure a 
weighted average, instead of adding $3.00 and $1.50, and 
dividing the sum by two, the statistician takes into account 
the number of men receiving each wage, thus : — 

10 carpenters at I3 = $30 per day 
20 laborers at $1.50 = S30 per day 
30 workers receive $60 per day 



Wages and Standards 43 

or each worker receives a daily " weighted " average of 
$2.00. The mathematical average is, in this case, twenty- 
five cents per day higher than the " weighted " average. 
In cases where average wages must be used, the weighted 
average is by far the more accurate form. 

Prices are paid by all, and the average price of a given 
commodity is fairly representative of actual conditions. 
By examining wholesale price-lists, it is possible wages and 
to determine, with a fair degree of accuracy, what P"ces: 
amounts people are forced to pay for the commodities they 
buy. 

In order to make the contrast between wages and prices 
as effective as possible, several bureaus of labor publish 
bulletins contrasting the wages of labor and the cost of 
food. A study of these bulletins shows that since 1890 
there has been a very great change in wages and Recent 
prices. Both fell heavily during the financial flucinations. 
depression of 1893-1894, and then both rose regularly until 
1907, when there was another sharp decline which has since 
been followed by a slight rise in both prices and wages. 

It is impossible to determine accurately whether prices 
have risen more than wages or wages more than prices 
during the last twenty years. A recent New Jersey report 
would lead to the conclusion that prices have risen more 
rapidly than wages. One fact is, however, ap- The rise in 
parent, — • wages have risen for some of the labor- ^"'^'^•^■ 
ers ; prices have risen for all. An examination of the United 
States Bureau of Labor Bulletins shows that in some indus- 
tries wages have actually fallen ; nevertheless these laborers, 
on their lower wages, must pay higher prices. 

The situation is particularly severe among clerks, sales- 
people, and other salaried employees earning from $1200 



44 Elements oj Economics 

to $3500 per year. The studies of wages and the cost of 
Hving include the wages of wage earners only. Could like 
statements be made for the large class of salaried em- 
ployees, it would probably be found that, while salaries 
have been practically stationary, the cost of the necessaries 
of life has increased at least fifty per cent. 

Numerous attempts have been made to discover the 
causes which underlie the rise in prices. The tariff, the 
trusts, increasing wages, the increased gold supply, luxury, 
and city life have all been assigned as contributing factors. 
As to which cause or which combination of causes is prima- 
rily responsible for rising prices, there is no general agreement. 

With this chapter we close the discussion of the problems 
connected with the consumption of wealth. We shall now 
turn our attention to the problems of wealth production; 
for, as we have previously indicated, individual welfare may 
also be measured in terms of production. 

TOPICS FOR CLASS DISCUSSION 

1. Should any relation be maintained between wages and stand- 
ards? 

2. How should this be done ? 

3. After ascertaining the discrepancy between wages and stand- 
ards in the leading cities, what further steps must be taken ? 

4. Do high wages mean a high standard of living ? 

5. Why is the actual amount of the money wage unimportant ? 

6. Why are " average wages " inconclusive ? "" 

7. Granted that an adjustment can be effected between wages and 
prices, why is this desirable ? 

REFERENCES 

Bulletins — United States Bureau of Labor. 
Wages in the United States — Scott Nearing. 
1 8th Annual Report — United States Bureau of Labor. 
The Pittsburg Survey — P. U. Kellogg, Editor. 



PART III 
THE PRODUCTION OF WEALTH 

CHAPTER VI 

Natural Resources of the United States 

I. The. factors in production: 

1 . Meaning of production 

2. Requisites of production 

11. The part played by natural resources: 

1. In ancient times 

2. In modern civilizations 

3. In China and the United States 

III. The " land " or natural resources of the United States 

1. Importance of " land " : 
a. Its meaning 

h. How it determines activities 

c. How it aids man 

d. How it favors the United States : 
(i) In extent and climate 

(2) Importance of climate 

2. The minerals of the United States : 
a. Their importance 

h. Coal : 

(i) Our supply 

(2) Our consumption 

(3) Kinds and uses 
c. Petroleum and gas : 

(i) Our supply 

(2) A problem of the future 

45 



46 Elements oj Economics 

d. Iron and copper 

e. Other minerals 

/. Necessity for conservation 
3. The conclusion 

The Factors in Production. — Production is the process 
of creating or increasing utilities in economic goods, that 
is, of creating want-satisfying qualities in the raw materials 
of nature which supply the basis of all economic goods. 
Meaning of Of course, according to the theory of the inde- 
production. structibility of matter, man can neither create 
nor destroy a single unit of matter. However, it is per- 
fectly possible for him to change the form of this matter so 
that it will serve some definite purpose. This process, 
taking, place everywhere and at all times, results in what 
we have already described as the creation of form utilities 
in economic goods. Man's efforts in the field of production 
consist, therefore, of all those activities which lead to the 
creation of utilities of one kind or another. 

Production, which furnishes the material basis of wel- 
fare, depends upon natural resources, labor, and capital. 
Re uisites Natural resources are gifts of nature, limited in 
of produc- extent ; labor is industrial effort ; capital is an 
economic good used to assist in production. 
Every modern productive operation requires these three 
factors. Land furnishes the raw material; labor, the effort; 
and capital, the tools which are to assist in increasing the 
want-satisfying power of economic goods. Thus, specifi- 
cally, the tree standing on the hillside is a natural resource. 
A man approaches the tree and begins chopping it with 
an ax. The man is labor ; the ax is capital. The felling 
of the tree, which has brought it one step toward its final 
form of chairs, let us say, is one act in an operation which 



Natural Resources of the United States 47 

will enable the wood to satisfy human wants. Therefore 
the act is productive. 

The Part played by Natural Resources. — • Natural re- 
sources may not make a civilization, but without them 
civilization would be impossible. A study of the great 
civilizations of the past shows that without exception the 
basis of their success was an adequate supply of natural 
resources. Babylonian, Egyptian, Carthaginian, in ancient 
Roman, and Chinese civilizations were all estab- ti^^s. 
lished in fertile valleys or with a nucleus of fertile land. In 
an age when agricultural land was almost the only resource 
relied upon, civilizations were necessarily founded in fertile 
agricultural districts. This truth was clearly recognized 
by the preacher who publicly gave thanks to Heaven for 
making the great rivers flow beside the big cities. Although 
his economics was certainly defective, he was grasping at an 
important principle. 

Natural resources are more important to-day than they 
were in any historic period, because modern civilization is 
founded on mineral as well as on agricultural resources. 
What, then, are the present resources of the world ? Where 
do we find the possibiKties for the development of great 
modern civilizations? The retarded development of the 
African continent is the outcome of its vast desert, great 
heat, regular coast line, and few navigable rivers. South 
America has its Amazon basin, but the tropical location 
and dense vegetable growth make the region at present of 
Httle real agricultural value ; while the southern portions 
of the continent are too restricted in extent in modem 
to furnish the basis for an extensive civiliza- civilizations, 
tion. In Europe, the fertile basin of the Danube alone 
provides a really adequate physical background for this 



48 Elements of Economics n.' 

purpose. Australia is in parts far too barren aind tKe sec- 
tions which are usable are not sufl&cient in size to permit 
the establishment of a world power. Three other districts 
provide a basis in natural resources for a great world 
civilization. The first is India, whose semitropical climate 
in part militates against its success as the home of a domi- 
nant civilization; the second is China; the third is the 
United States. 

These last two centers afford perhaps the largest resource 
possibiHties for civihzation in the world. The Yang-tse- 
Kiang Valley of China, fertile and wide in extent, provides 
means of transportation and rich agricultural land, while the 
timber-covered mountains of the north are rich in mineral 
T o,.- J wealth. The United States, with its Mississippi 

In China and ' ^^ 

United Valley, its variety of chmate, its mineral and 

states. vegetable wealth, its great rivers, and its broken 

coast line has already spelled opportunity to milUons of 
home seekers, and it promises in the future even greater 
development. 

Natural Resources of United States. — In economic terms 
the word " land " means not only fields and meadows, but 
also rivers, lakes, bays, mines of coal and metals, and oil, 
Importance ^sh, forests, and wild game. In short, " land " 
of "land": includes all the gifts of nature (other than air 
Its meaning. ^^^ suuHght) which cxist in their present form 
without the expenditure of any human labor. Most of this 
wealth is converted by mining, chopping, and similar 
operations into raw materials upon which men work to 
secure their hvelihood. 

The character of natural resources frequently determines 
the hnes along which people will direct their energies. Could 
Columbus, when he first reached American shores, have seen 



Natural Resources of the United States 49 

the vast continent with all its latent possibilities, he might 
easily have predicted many of the transformations which 
have since taken place. Along the barren New jy^^^^g 
England coast with its sharp, forested hills, thin determines 
soil, rivers, creeks, and bays, he would have ob- 
served the possibiHty of developing lumbering, shipbuilding, 
fisheries, commerce, and manufactures. In Pennsylvania 
he would have seen that the pioneer would eventually em- 
ploy coal, iron, and oil, and from them construct the new 
industry. Again, could he have traveled, over the fertile 
valleys of the South with its congenial climate, he would 
readily have foretold that here was a basis for extended 
agricultural development. 

Natural resources assist in the development of civiliza- 
tion chiefly in four ways: (i) soil and climate furnish 
the basis for agricultural development ; (2) min- Nature aids 
eral resources furnish the basis of industry; ''^'^"• 
(3) forests provide wood and conserve rainfall ; (4) water 
resources furnish transportation and power. 

Nature has been free in her gifts to the United States, but 
perhaps nowhere more so than in the wide range of climatic 
and agricultural conditions which she has afforded. The 
fertihty of the soil has already been pointed out. The land, 
stretching fifteen hundred miles north and south, makes 
possible a wide range of climate, further diversified by alti- 
tudes ranging from sea level to elevations of several thou- 
sand feet. The most southern part is parallel with Nature 
the great Sahara, while the northern limits, ^^11^ 
exclusive of Alaska, are in the latitude of Ger- states. 
many. Most parts of this vast area, about the size of 
Europe, will support a variety of crops. Even where the 
amount of rainfall is inadequate, natural obstacles may often 



50 Elements of Economics 

be overcome by irrigation. If varied climate is an aid to 
varied agriculture, there is no other section of the world 
in which a more effective combination of climatic and 
agricultural possibilities exists. 

CHmate is a basic resource which cannot be destroyed or 
materially altered by human wastefulness. Modern world 
powers have their homes in the temperate zone ; and it is 
fair to assume that, so long as the present forms of civihza- 
tion prevail, cold, invigorating winters with warm short 
summers will combine to produce the greatest vitality and 
the most enduring energy. Since it is upon vitality and 
energy that civilization largely depends, the climatic loca- 
tion of the United States is most favorable. 

If, now, we look under the surface of the earth, we shall 
find that nature has endowed the United States with rich 
mineral deposits. This kind of resource has always been 
of value to mankind,. but it is only with the advent of mod- 
ern industry that it begins to assume its greatest importance. 
In primitive civilizations, stone, bronze, iron, tin, zinc. 
Minerals gold, Silver, and other minerals were used for orna- 
of United ments, for weapons, and for similar purposes. In 
Their im- advanced civilizations, however, minerals deter- 
portance. mine largely the direction of national progress 
and the extent of national prosperity. 

For convenience of discussion, minerals may be divided 
into two groups : fuels and ores. Of the fuels, coal is 
by far the most important, As a factor in promoting pros- 
perity, it is second to none of the minerals in its threefold 
function of providing heat, light, and power. One hundred 
years ago the nation had a supply of coal paral- 

Coal. 

leled only by that of China. To-day, however, 
authorities say that at our present rate of increase in con- 



Natural Resources of the United States 51 

sumption the available supply of anthracite coal will be 
exhausted in about forty years and the available beds 
of high-class bituminous coal in about one hundred and 
twenty-five years. 

The increased use of coal has been phenomenal. From 
1816 to 1825 there were mined 331,356 tons; from 1856 to 
1865 there were mined 173,795,000 tons; while from 1896 
to 1905 the amount mined had increased to 2,832,599,000 
tons. So far as present indications are concerned, this 
consumption will increase in the future, subject only to the 
increasing cost of production. It will thus be seen that in 
no other field is conservation of more vital importance. 

Coal exists in three forms : anthracite, bituminous, and 
lignite. Anthracite coal contains the highest percentage of 
carbon and is the most valuable as fuel. The available 
fields of anthracite, located in Pennsylvania, are being rap- 
idly exhausted. Bituminous coal, which contains less carbon 
and is less desirable for domestic consumption, can be used 
for almost all commercial purposes. Furthermore, it 
exists in nearly all parts of the country. The third form of 
coal, known as lignite, consists of vegetable matter 
which has undergone chemical change and is much less 
valuable commercially. Vast fields of this lignite have 
been found in the Northwest. If its use can be made com- 
mercially profitable, it may be the coal of the future. 

The other mineral fuels, petroleum and natural gas, which 
have been discovered in connection with most of the coal 
fields, are being rapidly exhausted. Already abundant 
supplies in Pennsylvania have been depleted. Ohio, In- 
diana, Illinois, and West Virginia are failing to Petroleum 
increase their supply; and the time may soon and gas. 
come, perhaps within a quarter of a century, when the 



52 Elements of Economics 

better forms of petroleum and natural gas will be commer- 
cially unusable because of their scarcity and high price. 
In the Southwest, many new forms of petroleum have been 
discovered which may, with the advance of chemistry, re- 
place the better grades now in use. 

This question of the rapid diminution of the fuel supply 
presents us with a serious problem. When men first lived 
in the temperate zone, they depended upon wood and peat 
for fuel. Gradually, coal and gas replaced the more primi- 
tive forms of fuel. With the exhaustion of these fuels, the 
temperate dwellers are face to face with the problem of 
keeping warm in winter. Without some form of artificial 
heat, life in the temperate zone is impossible. What, then, 
shall civilization do? Furthermore, since modern industry 
is dependent upon power, mechanically produced, the future 
must discover some substitute for the rapidly vanishing 
mineral fuels. Though the immediate future is by no means 
certain, water power may ultimately prove an adequate 
substitute. 

Among the mineral ores, iron and copper are by far the 
most important, and the apparent supply of these minerals 
is far larger than the available supply of coal. Originally, 
bog ore was taken from the lowlands of New Jersey and Vir- 
ginia and converted into iron and steel products. This bog 
Iron and Ore industry was then displaced by the ore mines 
copper. q{ Pennsylvania, which, in turn, have been sup- 

planted by the ore fields of the Lake regions. In these 
latter fields, the ore lies on the surface and is frequently 
shoveled by means of steam power into cars in exactly the 
same way that a gravel bank is removed. 

Gold, silver, tin, lead, zinc, cement, brick clay, and stone 
are also produced in considerable quantities throughout the 



Natural Resources of the United States 53 

United States. While less important than iron, they 
nevertheless play a leading part in determining other miner- 
the progress of an industrial civilization. Espe- '^^•'• 
dally is this true of cement, brick clay, and stone, all of 
which are particularly valuable in structural operations. 

These mineral ores together with the mineral fuels con- 
stitute the most exhaustible form of natural resources. A 
forest which is burned away may be replanted and replaced, 
but each ton of coal or silver ore which is mined is irre- 
placeable. It has disappeared and, although some substi- 
tute, for it may be found, the coal or the silver itself will 
never, at least in historic times, be replaced. „ 

' ' '^ Necessity 

Too much emphasis therefore cannot be laid for conserva- 
upon the necessity for conserving minerals. *'^''^' 
When coal is mined, all of the coal in the mine should be 
removed. The policy frequently followed of removing 
the easily mined coal and then permitting the mine to 
fall in, thus forever sealing up millions of tons of less de- 
sirable fuel, is disastrous. Mineral resources are at the 
basis of every modern industrial society, and the welfare of 
both industry and society demands conservation. 

We have seen, from this brief review of our natural re- 
sources, that, so far as they are concerned, nature has amply 
endowed the United States with the basis of The conclu- 
progress and prosperity. Her great extent of ^*°°- 
territory, her fertility of soil, her variety of climate, her 
great mineral wealth still capable of conservation, all lead 
us to this conclusion. 



54 Elements oj Economics 

TOPICS FOR CLASS DISCUSSION 

1. What is meant by the " economic interpretation of history " ? 

2. What physical reasons account for the greatness of England ? Of 
the United States ? 

3. Has rainfall any relation to the density of population ? 

4. What relation exists between the shape and location of land 
masses of the earth and man's development ? 

5. Explain the relation between climate and efficiency. 

6. Do the natural resources influence the development of industries 
in a country ? How have they affected the industries of the United 
States ? 

7. What are the chief natural resources of the United States ? In 
respect of what resources is the United States preeminent ? 

8. Of what use is land to the lumberman ? to the manufacturer ? 
to the shopkeeper ? to the traveling salesman ? to the fisherman ? to 
the aviator ? 

9. Why are iron and coal called the foundation stones of industry ? 
10. Why does the Steel Trust aim to secure possession of a large 

supply of iron ore and coal ? 

REFERENCES 

Conservation of Natural Resources — C. R. Van Hise. 

Conference of Governors — Proceedings, 1908. 

Annals American Academy of Political and Social Science — May, 1909. 

Economic History of the United States — E. L. Bogart. 

Reports of the National Conservation Commission. 

Nature and Man in America — N. S. Shaler. 



CHAPTER VII 

Land Reclamation 

I. Reclamation by means of irrigation 

1. How accomplished 

2. First projects : 

a. Work of the Pueblos 

b. Work of the Mormons 

c. Operations in California 

d. Result of the Horace Greeley project 

3. Recent development : 

a. Extent and value of irrigated lands (1900) 

b. The act of 1902 : 

(i) What it provides for 

(2) How expense is borne 

(3) Future possibilities of irrigation 

(4) The work recently done 

4. Advantages of irrigation. 

II. Reclamation by means of drainage 

1. How carried on 

2. Our swamp lands : 

a. Their extent and character 

b. The proposed work 

c. The Florida Everglades 

d. The Dismal Swamp 

e. Other swamp lands 

3. The problem before us 

Agricultural land is among the foremost assets which a 
nation can possess. Hence, any agencies which tend to 
render it less valuable should be effectively counteracted, 
while those measures which will insure its fertility should 
receive hearty public support. There are really three 

55 



56 Elements of Economics 

forms of land reclamation : (i) the reclamation of abandoned 
farm land by restoring its fertility ; (2) reclamation through 
irrigation ; and (3) reclamation by drainage. Since, how- 
ever, the problem of reclaiming abandoned land will be 
considered in connection with the subject of American agri- 
culture, the present chapter will be devoted to a discussion 
of the problems of irrigation and drainage. 

Reclamation by Means of Irrigation. — Any stream or 
body of water which is properly situated may be used for 
How accom- irrigating land. In some cases the water for 
pushed. irrigation is pumped from artesian wells. Wher- 
ever there is a shortage of rainfall, irrigation is possible, 
provided there is an adequate supply of water available. . 

The first irrigation in America was undertaken by the 
Pueblo Indians and the Cliff Dwellers who Hved in New 
Mexico and Arizona. While their methods were of the 
crudest, their work was of such a substantial character 
First proj- that farmers still use some of their irrigation 
®*^*^' ditches. Scientific irrigation replaced these 

Pueblos and crudcr methods when the Mormons under their 
Mormons. great Organizer, Brigham Young, began their 
conquest of the Utah desert. Starting just before the 
middle of the nineteenth century, the irrigation work of the 
Mormons has spread until it covers tracts in Utah, Wyoming, 
Idaho, and Arizona. 

A further step in the development of irrigation was made 
during the gold rush to California. The miners built 
sluices to carry water for their mining. Sometimes, when 
r,^ r these sluices passed through fertile land, they 

operations '^ ° ' -' 

in Caiifor- were tapped either by the miners or by the 
'^^'^' farmers. In this way, the ultimate value of irri- 

gation was conclusively demonstrated and the foundation 



Land Reclamation 57 

laid for the irrigation systems which have helped to make 
California one of the garden spots of the world. 

The Horace Greeley Irrigation Colony, named after the 
man who was most interested in promoting it, 
was started in 1870 and furnished the nucleus Horace 
of the irrigation boom of the eighties. During '^''^^^^y 

project. 

this boom hundreds of miles of canals were 
planned and built, the work involving millions of dollars. 

Since 1870 the growth of irrigation in the West has been 
rapid. In that year there were 20,000 acres irrigated ; by 
1880 the number of acres had increased to 1,500,000; in 

1889, to 3,631,000; and in 1900, to 7,539,000. Recent 

Of this irrigated land, eighty per cent was de- growth: 

,i,,i-> r J i. i. j_ Extent and 

voted to the raismg 01 crops and twenty per cent ^^i^^ ^^ 
to pasture land. While the total cost of provid- iqoo- 
ing the irrigation for this seven and a half million acres was 
$67,770,000, the value of the crops in 1900 was $86,860,000, 
or a return in one year of about thirty per cent more than 
the total cost of irrigation. 

The greatest real gains, however, have been made since 
the passage of the National Reclamation Act of 1902, 
which provides for the construction of irrigation works 
under the direction of the Secretary of the Interior. Such 
works are to conform to the state laws and to be 
developed in accordance with local conditions. 
In order to prevent the possibility of the concentration of 
the irrigated land in the hands of a few individuals, hold- 
ings under the Act are limited to 160 acres for any one per- 
son. 

Under this Act of 1902 the expense of the construction 
and improvement of an irrigation system must be met from 
the sale of pubHc land. In this way the work was started. 



58 Elements of Economics 

The settlers who take up irrigated lands are required to pay 
to the government, in ten equal yearly installments, the 
cost of irrigation ; so that at the end of ten years the gov- 
ernment has returned to it an amount of money equal to the 
amount spent the previous decade on the irrigation system. 
By this means, every ten years it is possible to double the 
amount of irrigation work undertaken. In order to insure 
a democratic method of administration, the irrigation plant 
is turned over to the community as soon as it has been paid 
for. Thus the responsibility for the successful management 
of the system rests on the local community rather than on 
the authorities at Washington. 

In the aggregate, the seven and a half million acres of 
irrigated land sounds like a great amount ; but when com- 
pared with the, possibilities of developing systems of irriga- 
tion it is only a small beginning. There are approximately 
seventy million acres of arid or nearly arid land which may 
still be irrigated. The work already done therefore covers 
about one ninth of the irrigable land of the country. 

Since the passage of the National Reclamation Act of 
1902, the government has undertaken the construction of 
irrigation projects which will irrigate about five million acres 
of land, or an area equal to the present total acreage of crops 
in Connecticut, Massachusetts, New Hampshire, and Florida. 

An Eastern man who recently visited some of the Western 
irrigated land was asked on his return what he thought of 
the Eastern agriculture as compared with that of the West. 
Advantages " Oh," said he, " it is a poor substitute for 
of irrigation, irrigation." Continuous sunshine and a suffi- 
cient water supply, furnished when wanted and in exactly 
the right quantities, form a sharp contrast with the- fickle 
climate of the East. 



Land Reclamation 59 

Reclamation by Means of Drainage. — The reclamation 
of land by drainage, which constitutes a main feature of 
the Act of 1902, is in no sense less important than How carried 
the work of irrigation. Eight million acres of land °'^* 
which have been drained up to the present time have been 
reclaimed through private or State initiative. The national 
government has done practically nothing. 

In the United States there are over sixty million acres of 
swamp or overflowed lands. The notable thing about 
swamp land is that it is frequently of very high quality. 
Take, for example, the swamp lands along the Mississippi. 
They consist of rich, deep soil that has been de- Swamp 
posited by the river during ages. This soil is ' , 

formed of the finest silt, the scourings of many character. 
different kinds of rocks carried down from the head waters 
of the Mississippi and its tributaries. When, in contrast 
to this, one considers that in certain sections of the country 
farmers are attempting to raise crops on poor soil eight or 
ten inches in depth, it will readily be seen that the swamp 
land when drained will present opportunities far superior 
to those now offered by the average farm land. 

At the session of 1 905-1 906, Congress appropriated 
$15,000 for the purpose of surveying the swamp lands on the 
ceded Chippewa Indian reservations in Minnesota. The 
report on the survey shows that it is possible to drain 
267,000 acres of land and to improve 135,000 The proposed 
additional acres. The total cost of this work is ^'"'^• 
estimated at slightly over $1,000,000, while the cost per 
acre will vary from $1.62 to $3.23. Since this is a region 
in which drained lands are worth from $12 to $15 per 
acre, the government can readily afford to invest in the 
project. 



6o Elements of Economics 

Perhaps the two best known swamps are the Florida 
Everglades and the Dismal Swamp of Virginia. The Ever- 
glades is a swamp during the wet season only and even then 
there are stretches of prairie. These, however, are rendered 
The Florida inaccessible by the water runs. Some private 
Everglades, attempts have been made to drain the Ever- 
glades, and these have been singularly successful. The soil, 
consisting of silt and decayed vegetable matter, ranges 
from three to fifteen feet in depth and is remarkably rich. 
The Everglades cover more than three million and a half 
acres, a large portion of which is drainable at a very 
reasonable expense. 

The Dismal Swamp is covered by patches of water which 
The Dismal are scldom more than two or three feet in depth. 
Swamp. Ljj^g i-jjg Everglades, the Dismal Swamp presents 
no serious engineering difficulties. It is merely a big proj- 
ect which must be handled on a large scale. 

In Louisiana near New Orleans, in Minnesota, in North 
Dakota, in the Red River Valley in Oklahoma, and in 
parts of California, considerable draining has been pri- 
other swamp vatcly Undertaken and has met with great suc- 
lands. (^ggg_ ^g [^ ^jjg (^g^gg pf irrigation, however, 

reclamation projects must be undertaken on a scale which is 
too vast for individual enterprise and which can be most 
justly and equitably administered by a government agency. 
There are over 70,000,000 acres of land available for cul- 
tivation and wonderfully rich in productive power if only 
The problem Water Can be supplied to them in sufficient quan- 
beforeus. titles. On the other hand, there are another 
60,000,000 acres which will become wonderfully productive 
if they can be properly drained. The problem of supplying 
the water in one case and removing it in the other is intri- 



Land Reclamation 6i 

cate, demanding careful study, highly specialized mechani- 
cal appliances, and vast outlays of capital. Such outlays 
can best be made by the federal government. 



>J 



TOPICS FOR CLASS DISCUSSION 



1. What does irrigation show us in regard to man's control over his 
environment ? 

2. Is the government interfering with a " divine plan " when it 
irrigates barren land ? 

3. In what sense is Eastern agriculture "a poor substitute for ir- 
rigation " ? 

4. Why was irrigation not taken up by the government earher in 
the history of the country ? 

5. What are the advantages of irrigation? 

6. Is it better to irrigate the land of the United States or to go over 
into Canada and take up the " free land " ? 

7. Why are swamps so rich? 

8. Why are they not more extensively drained and used ? 

9. On what grounds can the national government justify its activi- 
ties in the reclamation of land ? 

REFERENCES 

Conservation of Natural Resources — C. R. Van Hise. 

Annals American Academy of Political and Social Science — May, 

1909. 
Census of 1900 — " Irrigation." 
Conference of Governors — Proceedings, 1908. 
National Geographic Magazine — 1902 to date. 
Reports of the National Conservation Commission. 



CHAPTER VIII 

Forest Resources 

I. The forests of the United States 

1. Importance of forests 

2. Groups of forests : 

a. The Northeast Forest 
h. The Southern Forest 

c. The Lake State Forest 

d. The Rocky Mountain Forest 

e. The Pacific Coast Forest 

3. Consumption of wood 

II. The destruction of forests , 

1 . The causes : 

a. Effect of early attitude 
h. Forest fires 

2. The effects : : 
a. On the wood supply 

h. On freshets and floods 

c. On washouts 

d. On droughts 

e. On water power 

3. The remedy 

Forests of the United States. — One of the chief assets 
of a nation is its natural forest wealth. Although forests 
are usually thought of as sources of lumber supply, their 
greatest value lies in the part they play in the conservation of 
Their im- soil moisture. While lumber is important and 
portance. present civilization largely depends upon it, sub- 
stitutes for wood may be found. But for soil moisture 
there is no substitute; every crop of grain, vegetables, and 

62 



Forest Resources 63 

fruit depends upon it. Its conservation, therefore, is a mat- 
ter of vital importance. In addition to maintaining soil 
moisture, forests, by insuring a regular stream flow, guaran- 
tee constant water power and regular water transportation. 
Considering, therefore, their direct and indirect value, for- 
ests serve perhaps more useful purposes than any other 
natural resource. 

A forest survey of the United States shows that five groups 
of states embrace the naturally timbered areas Groups of 
of the country, — the Northeastern States, the foJ'ests : 
Southern States, the Lake States, the Rocky Mountain 
States, and the Pacific States. 

In the Northeast district the present stand is mainly 
spruce, second growth of white pine, hemlock, and hard 
woods. For many years the most characteristic tree of this 
forest was the white pine, a tree that has long enjoyed 
great commercial importance. The chief district where this 
tree grows in marked abundance is in the confines of north- 
ern United States. This white pine is soft, light, ^, 
easily worked, suitable for the cabinetmaker, Northeast 
joiner, carpenter, and pattern maker. Formerly "^^^'" 
this wood was used for general construction to a greater 
extent than any other wood in the United States. But 
white pine is now becoming so scarce that the best grades 
cost more than good mahogany. In this Northeastern 
Forest another tree is worthy of mention, — the spruce, 
which is extensively used for wood pulp. 

In the South are found four types of forest, which broadly 
speaking may be said to divide the land among them accord- 
ing to elevation above sea level. The swamp forests of the 
Atlantic and Gulf coasts and the bottom lands of the rivers 
furnish cypress and hard woods. The remainder of the 



64 Elements of Economics 

coastal plain from Virginia to Texas was originally covered 

with " Southern " or " yellow " pine, — the trade name 

under which the lumber of several pines is now 

The . 

Southern marketed. The plateau encircling the Appala- 
Forest. chian range and the lower parts of the mountain 

region itself support a hardwood forest, while the higher 
ridges are occupied by conifers, — mainly spruce, white 
pine, and hemlock. 

The Lake States still contain many hardwood forests 

The Lak ^^ their southern portions. In the north the 

Slate coniferous forest includes, besides the rapidly 

''^^^^' dwindling pine, considerable tamarack, cedar, 

and hemlock. 

The forests of the Rockies occupy isolated mountain 
chains separated by grazing lands, deserts, or' cultivated 

. , valleys. The location of these isolated patches 
Mountain of forcsts is determined largely by the degree of 
Forest. moisture and the presence or absence of forest 

fires. The chief timber trees of this belt are Western yellow 
pine, a species of spruce, and the red fir. 

The last great stretch of woodland is the Pacific Coast 
Forest, extending along the coast west of the Rocky Moun- 
tain Forest, and running through the States of California, 
Washington, and Oregon. This forest is the niost densely 
The Pacific timbered of any in the country, perhaps in the 
Coast Forest, world. The characteristic trees, of the district 
are of the iir species, especially that known as the Douglas 
fir. Other trees found in addition to the Douglas fir are 
the Western hemlock, Western yellow pine, redwood, 
and cedar. Thus the forest areas of the United States 
contain a wide range of both conifers and hard woods. 

The United States was endowed originally with rich forest 



Forest Resources 65 

resources ; but, like a spendthrift, the nation has consumed 
these riches in an extravagant fashion. According to gov- 
ernment figures the population of the United States from 
1880 to 1900 increased fifty- two per cent, while our use 
the increase in lumber cut during the same period °* ^°°'^- 
was no less than ninety-four per cent. Our present annual 
consumption of wood in all forms is more than three times 
as great as the annual growth of our forests. So great has 
been this increase in the consumption of wood that the 
source of supply has steadily shifted westward until to-day 
the product of the Pacific States furnishes a large proportion 
of the total output of the country. 

Destruction of Forests. — Because so many forest tracts 
have been cut over and left desolate, the United States has 
now reached a point where its remaining forests are vitally 
important. This forest destruction may be said to have 
resulted, first, from the effect of our early attitude toward 
forests. To the American settler the forest was Causes: 
an enemy. Not only did it stand in the way of g^^/y " 
the development of agriculture, but it sheltered attitude. 
Indians and wild beasts. Therefore, the settler naturally 
said, "Why take care of an enemy? " Accordingly, he began 
as rapidly as possible to clear the land of forests and to 
devote it to the purpose of sustaining life. In this way a 
habit of mind was engendered that has had its logical out- 
come in the action of the " timber butcher," who clears the 
land of everything " ten inches through and eighteen inches 
from the ground." 

Another cause of the destruction of forests is the spread 
of forest fires, against which no local scientific means of pre- 
vention has been taken. This loss from fire is estimated at 
fifty milHon dollars annually. In unsettled districts the sparks 



66 Elements of Economics 

from locomotives start these fires, which, unchecked except 

by adverse wind and natural barriers, gain good headway 

before they are discovered and burn over thou- 

•Forest fires. i r /-m • 

sands of acres. This was the case in 1902 with 
the Hinckley fire in Minnesota, which destroyed twenty-five 
milKon dollars' worth of property and over four hundred 
lives. This fire smoldered for two weeks before a high wind 
came and drove it fiercely through the forests. At any time 
during these two weeks an effort on the part of skilled for- 
esters could have extinguished the fire and saved the lives 
and property later sacrificed. 

Having seen the causes of forest destruction, let us now 
inquire into its effects. Naturally the first result of the 
ruthless cutting and destruction of timber is to deprive 
Effects: ^^^ community of its supply of wood. Experts 
On wood tell US that, at our present rate of consumption, 
supply. Q^j. supply of commercial timber will last only 

thirty years. This problem, while very serious in itself, : 
might be solved through the importation of wood. There 
is, however, another phase of the question still graver in its 
aspect. 

When a mountain range is cut clean of timber, the brush 
and limbs are left scattered over the bare tract. A dry 
season comes and a passing hunter drops a match or a loco- 
motive throws a spark among this brush. The conse- 
quence, as we have seen, is a forest fire. The fire, supplied 
On freshets with the most combustiblc materials in the way 
and floods, ^f dried branches and leaves, burns fiercely. 
Most of the vegetable matter is removed from the top of 
the ground, and the surface of the earth is baked hard. 
Then comes a rain, which, instead of soaking into the ground 
as it ordinarily does in a wooded district, runs off rapidly into 



Forest Resources 67 

the streams, causing a freshet. If the rain has been exten- 
sive enough and covered a large tract of country, the result 
is a flood of serious proportions. 

Again, in agricultural districts where the timber has been 
cut from the top of hills, a heavy rain, running off rapidly, 
washes the soil from the slopes down into the val- 
leys. One of the great problems which mountain 
farmers, who have allowed their timber to be removed, now 
face, is that of preventing washouts on the sloping fields. 

There is still another phase of the problem. As it exists 
in nature, the spongy vegetable matter in the forests holds 
the water which falls in rainy seasons and allows it to filter 
gradually off into the springs and streams during 

, . , , . 0?J droughts. 

the drier times. In many agricultural regions 
drought is becoming a serious problem during the late 
summer months. In districts where forests have been 
removed men are surprised to find that the springs and 
streams dry up in the summer. 

Finally, the results of deforestation are not all direct. 
The industries of the country are depending more and more 
upon water power as a motive force. In districts where 
turbines have been set up and water power is on water 
being converted into electricity, low streams in Po'^^^- 
the dry summer months force the factories to close tempo- 
rarily. One of the greatest drawbacks to generating power 
on small streams, therefore, is that they are flooded with 
water in the spring and empty in the fall. If there were 
timber land at the head waters, both conditions would be 
obviated. 

Thus we see that a shortage of timber supply, with a con- 
sequent rise in the price of lumber, disastrous freshets and 
floods, the washing away of sloping agricultural lands, and 



6^ Elements of Economics 

the failure of springs and streams are all phenomena result- 
ing from deforestation. 

These evils can be remedied only by a vigorous policy of 
conserving our existing forests and by entering upon a 
national campaign of reforestation. If the timber supply 
of the country will last but thirty years, it is absolutely neces- 
sary that every stick of it should be guarded, that it should 

not be wantonly destroyed through forest fires 
The remedy. . , . , , 

or timber cuttmg, and that proper provision 

should be made for replacing every tree consumed. To 
meet this situation state action is inadequate ; a comprehen- 
sive national policy is imperative. The United States 
must follow the example of European countries and insist 
upon a rigid policy of conservation. 

TOPICS FOR CLASS DISCUSSION 

1. Explain the importance of the forest as a natural resource. 

2. What is the relation between deforestation and floods ? 

3. What is scientific forestry ? 

4. Describe the German forestry service. 

5. What could scientific forestry do for the United States? 

6. What steps have thus far been taken ? 

7. What justification can be advanced for the government forest 
reserves ? 

8. Outline the economic advantages of preserving the forests. 

REFERENCES __ ' 

Conservation of Natural Resources — C. R. Van Hise. 

Conference of Governors — Proceedings, 1908. 

Progress of Forestry — G. Pinchot. 

Annals American Academy of Pohtical and Social Science — May, 

1909. 
National Geographic Magazine — 1902 to date. 
Reports of National Conservation Commission. 



CHAPTER rX 

Water Resources 

I. Water as a source of power 

1. Its early use 

2. Why used to-day 

3. Method of utihzation 

4. Examples of utilization : 
a. At Niagara Falls 

h. On the Pacific Coast 
c. In the future 

5. The problem arising from it 

11. Water as a means of transportation 

1. Our inland waterways : 
a. Their great extent 

h. Their early importance 

c. Why valuable to-day 

d. Effect of Panama Canal 

e. Water transportation cheap 

2. Problems of the Mississippi River: 

a. The cutting of its banks : 
(i) The cause 

(2) The remedy 

b. The flooding of the river : 
(i) The cause 

(2) The remedy 

c. The cost of conservation 

In addition to harbors, there are two other water re- 
sources of great value to a nation. The first of these is water 
power; the second is water transportation. Both have 

69 



70 Elements of Economics 

been utilized in some form throughout historic times, yet 
to-day, in the United States, they are contributing only a 
fraction of their full quota to human welfare. 

Water as a Source of Power. — One of the resources 
which the early colonists found in comparative abundance 
was water power. Throughout New England and in cer- 
tain parts of the South, there were innumerable 

Its early use. . 

streams which had a high gradient and from 
which considerable water power could be developed. 
Therefore, when manufacturing was begun in the colonies, 
the power used was naturally water power. The water 
wheel was set down directly on the stream, a race was 
constructed, and the revolving wheel connected by belts and 
shafts with the machinery in the mill. 

However, the application of steam to industry, the dis- 
covery of coal, and the development of steam-propelled 
machinery, which came between 1750 and 1800, completely 
revolutionized the source of power utilized in American, 
industries. When the great coal beds were discovered, 
there was an immediate rush to exploit them; and during 
the nineteenth century the United States occupied itself 
Why used in mining coal as fast as it could be used in indus- 
to-day. |-j.y Toward the end of the century, however, a 

change occurred which very materially altered the situation. 
Coal, particularly anthracite coal, rose in price to figures 
which became almost prohibitive in certain industries. 
The situation was also aggravated by labor troubles which 
rendered the coal supply at times uncertain. In addition 
to this, experts declared that the available supply of coal in 
the United States would be exhausted in from forty to one 
hundred years. 

Under these circumstances, attention was once more 



Water Resources 71 

directed toward the utilization of water as a source of power. 
The developing knowledge of electrical appliances Method of 
made possible a revolution in methods of using iitiiization. 
water power. The old waterwheel was abandoned ; electric 
turbines were installed at the stream, the water power was 
converted into electricity, and then transported over wires 
for great distances. 

The most noteworthy instance of this conversion of 
water power into electricity is seen at Niagara Falls. Here 
are situated two plants. The one below the Falls on the 
American side is located in the Gorge. The Examples- 
water for its use is drawn from the upper Niagara Niagara 
River, run through the city of Niagara Falls, '^ '^' 
and discharged near the first Suspension Bridge. This 
plant is so situated as to be able to utilize a fall of two hun- 
dred and fifteen feet of water. However, it has certain ob- 
vious disadvantages. First, its buildings disfigure the Gorge ; 
and in the second place, the plant is difficult of access. 

The power plant above the Falls is a rather novel one. 
To construct it a pit one hundred and fifty feet deep was 
dug in the solid rock and at the bottom of this pit the 
turbines were placed. The motion generated in the turbines 
was returned to the electric generators at the surface by 
means of steel shafts. The power generated at the Falls 
supplies not only the industrial plants in the immediate 
neighborhood, but the electricity is carried to Buffalo, where 
it is used for trolley cars, for street and house lighting, 
grain elevators, and factories. 

While this is the most notable example in the country of 
the development of water power, the Pacific Coast also 
presents instances of its utilization. The important thing 
about Niagara Falls is the volume of its water. On the 



72 Elements of Economics 

Pacific Coast there are no bodies of water so large, but the 
fall which is secured is very great. For example, a part of 
On the Pa- the clectric power used at San Francisco is sup- 
cific Coast, plied from a plant located at the foot of a hill 
five hundred feet high, down which the water for the genera- 
tion of the electricity is carried in steel tubes. The velocity 
of the water when it reaches the power plant is stated at 
fourteen thousand feet per minute. After the power has 
been generated in this plant, it is carried one hundred and 
fifty miles at a pressure of from forty thousand to eighty 
thousand volts with a loss of about one-fourth of the power. 
There are many other sections of the country where in the 
future the use of water power may become general. The 
falls at Sault Ste. Marie between Lake Huron and Lake 
Superior have a drop of only twenty feet, and yet the volume 
of water is so enormous as to make possible the development 
, , , of a great amount of power. Likev/ise, the in- 

In the future. 

numerable small rivers along the Altantic Coast 
furnish in the aggregate a considerable source of water 
power. Again, those who propose regulating the flow of the 
Mississippi River by the construction of reservoirs at its 
head waters estimate that from these reservoirs about fifty 
million horse power may be developed. 

The real impetus to the use of water power in modern 
industry was given in the last decade of the nineteenth cen- 
tury, when it was found that, by means of it, electricity might 

be cheaply generated and then carried great dis- 
ingVrobiem. tances for commercial purposes. Indeed, the 

possibilities of water power have become so 
great that many conservationists who are working for 
the proper care of natural resources have shifted their 
emphasis from forests and minerals to water power. This 



Water Resources 73 

they have done because they reaHze that individuals and 
corporations, through a monopoly of water power sites, 
might secure an unshakable grip on the natural resources of 
the country. 

Water as a Means of Transportation. — Quite a different 
problem is presented by water transportation. Here, there 
is no danger of monopoly, since the ownership of the trans- 
portation facilities already lies in the federal government. 
In the United States, therefore, the problem of water trans- 
portation is solely a problem of wise use and development. 

Nowhere in the world is there a duplicate of the inland 
waterways of the United States. On the north lie the 
Great Lakes, which provide eighteen hundred miles of 
navigable water ; on the east and west coasts are inland 
numerous small, navigable streams. In the heart ^, . 

' ° Their great 

of the continent, reaching into twenty-two of extent. 
the States, is the Mississippi River System, which is nav- 
igable for thousands of miles. Although the twenty-two 
States reached by the Mississippi River System furnish 
seventy-five per cent of all the exports of the United 
States, the bulk of the agricultural products, and two-thirds 
of the manufactured products, the river system is but 
little used for transportation. 

The early colonists depended upon water transportation 
as they did upon water power, because of the abundance of 
water and also because there was no other easy Their early 
means of getting from place to place. The few ^f^^Portance. 
roads that existed were wretched. Therefore the streams 
became the highways of trade and travel, and settlements 
were made either on the coast or along rivers. 

The application of steam to industry led to the gradual 
abandonment of both water power and water transportation. 



74 Elements of Economics 

In both cases, however, the time has now been reached when 
steam power will no longer suffice, and, in order to maintain 
Why vaiu- our industrial efficiency, it has become necessary 
able to-day. ^q fg^y back upon natural power. In both cases, 
likewise, the diminution of the coal supply has played a 
leading part. In the case of transportation, however, 
there is another' factor of even greater importance. In 
prosperous years the railroads of the country are unable to 
handle the freight traffic. Some other means of transporta- 
tion is therefore inevitable. 

The value of our inland waterways will be enhanced by 
the opening of the Panama Canal and by the development of 
trade with South America. This combination of circum- 
r,tT , f stances will make the Gulf the natural outlet 

Ejfect of . ■ 

Panama for a great amount of the produce of the Missis- 
sippi Basin. If to this fact is added the ease 
with which heavy freight may be shipped by water, it is 
plain that logically a great portion of the Mississippi 
Basin's heavier products should go to the Gulf by water. 

Some idea of the relative cost of shipping by rail and 
by water may be gained from the statement that in 1905 
forty-four million tons of commerce passed through the 
locks of the Sault Ste. Marie Canal between Lake Superior 
and Lake Huron. This tonnage was carried for an average 
rate of .85 mills per ton per mile. The average freight 
charge per ton per mile on the railroads of the United States 
during 1905 was 7.6 mills, or about nine times as 
Water great as the water rate for the Great Lakes. The 

transporta- 

lion cheap. Same idea is brought out by a contrast between 

two Pittsburg rates. Between Pittsburg and 

Lake Erie there is a commerce, composed chiefly of iron 

ore and coal, amounting annually to about 30,000,000 tons. 



Water Resources 75 

The ore is carried by boat from Duluth on Lake Superior 
to Ashtabula on Lake Erie, a distance of one thousand miles, 
for about eighty cents per ton. The ore is then loaded on 
cars and carried to Pittsburg, a distance of one hundred and 
thirty-five miles, for ninety cents per ton, so that it costs 
ten cents more to ship a ton one hundred and thirty-five 
miles by rail than it does a thousand miles by water. 

Thus water transportation possesses a great advantage 
over land transportation. To realize the full possibilities 
of transportation by water, however, we must pj-obiemsof 
make many improvements in the Mississippi the Missis- 
River. In fact this river presents some serious ^^^^^' 
problems. It is a stream of bad habits, the worst of which 
are the cutting of its banks, the formation of sand bars in 
its channel, and the severity of its floods. 

The cutting of the banks is due to curves, technically 
called " meanders," and to the river's digging under the 
bank on the outside of the curve, particularly during flood 
, times. Sometimes this cutting amounts to one hundred or 
one hundred and fifty feet a year. As the channel cutting of 
is necessarily on the outside of the curve, and as ^'"^ *'^"^^- 
grain elevators, docks, and other instruments of traffic must 
be reached by means of this channel, it is obviously impos- 
sible to carry on commerce satisfactorily if the river is under- 
cutting the docks and elevators at the rate of one hundred 
feet a year. 

The river can never be successfully prevented from cutting 
its banks until it is straightened. This may seem almost 
impossible; but several of the German rivers which were 
particular offenders in this respect have been straightened, 
and in the process the rivers were made narrower, the change 
resulting in a higher gradient and a more rapid current. 



76 Elements of Economics 

Besides straightening the river, we can control its seasonal 
floods. Spring floods and summer droughts are due in great 
part to the deforestation of the mountainous country at the 
head waters of rivers. Great areas of land at the head 
waters of the Mississippi and its tributaries have been 
practically deforested. Consequently, in rainy seasons, the 
Flooding of water rushes off from the soil into the streams and 
the river. causcs flood damage farther down. Reforesta- 
tion would eliminate much of the danger. The work may 
further be facilitated by the building of storage dams which 
will check the floods and allow the surplus water to flow 
gradually down through the lower courses of the rivers. 

The straightening of the Mississippi, the reforesting of 
the hills at its head waters, and the building of storage dams 
on its principal tributaries to control floods may cost one 
Cost of con- hundred or two hundred or even three hun- 
servation. ^jj-g^j million dollars, but, if the full possibilities 
of the Mississippi Basin are to be realized, sooner or later, 
these changes must be made. The development of water 
transportation will involve in the United States, as it has 
involved in Europe, a great outlay of capital ; but if the 
experience of England and Germany furnishes any basis for 
judgment, the outlay, even though it be a great one, will 
be more than justified. 

TOPICS FOR CLASS DISCUSSION 

1. Why was water power used extensively by the early colonists? 

2. What led manufacturers to replace water power by steam ? 

3. What is there in the present development that shows a tendency 
toward the increased use of water power ? 

4. What advantages has the use of modern water power over mod- 
ern steam power ? 



Water Resources 77 

5. What advantage has steam power over water ? 

6. In what respect does a reversion to water power show progress ? 
, 7. What steps must be taken to secure the most economic use of 
water power ? 

8. How important were inland waterways before 1830? 

9. Contrast the relative merits of the railroad and the inland water- 
way. 

10. Why are the people of the United States laying new emphasis 
on inland water transportation ? 

11. Name the leading inland waterway systems of the United States. 

REFERENCES 

Economic History of the United States — E. L. Bogart. 

Census of 1900 — " Water Power." 

Conference of Governors — 1908 Proceedings. 

Annals American Academy of Political and Social Science — May, 

1909. 
Ocean and Inland Water Transportation — E. R. Johnson. 



CHAPTER X 

American Labor 

I. Nature of labor 

1. Importance of labor : 

a. In production 

b. In the city 

c. In the country 

d. In modern industry 

2. Meaning of labor 

3. Conservation of labor : 

a. Reason for conservation 

b. How effected : 
(i) Negatively 

(2) Positively • 

II. The labor force of the United States 

1. Its origin : 

a. The people of New England : 
(i) Their characteristics 

(2) Their similarity 

(3) Their occupations 

b. The people of the Middle colonies : 
(i) Elements in the population 

(2) Their characteristics 

(3) Why they developed industry 

c. The people of the South : 

(i) The agricultural conditions 

(2) Why slavery existed _- 

d. The conclusion 

2. Later sources : 

a. The newer elements : 

(i) From northwestern and central Europe 

(2) From southeastern Europe 

(3) From Canada 

b. The resulting problem 

78 



American Labor 79 

Nature of Labor. — There are three factors in production, 
— land, labor, and capital. A survey of the natural re- 
sources of the United States, of the soil, climate, its impor- ■ 
minerals, forests, and waterways, must necessarily ^°^® * 
be followed by a discussion of the second essen- tion. 
tial to production, — labor. The United States abounds 
in resources. To convert these resources into economic 
goods, labor is required. Labor has changed the face of the 
earth and nowhere is this more noticeable than in the city. 

Indeed, the modern city is almost wholly the product of 
labor. In primitive societies, where men live by hunting 
and fishing, nature supplies nearly everything. Even in 
the country districts to-day the trees, the grass, the flowers, 
the rich soil, the springs, the waterways, the clear sky, 
and the clean air are nature's gift. But in the 

T yt tftC C'lt'V 

city, natural things have been altered. The trees, 

the flowers, and even the green grass are artificially placed 

and protected by warning signs. Water can no longer be 

secured from a near-by spring. It has been pumped into a 

reservoir or run through an aqueduct to meet the city's 

needs. Even the sky and air are polluted by smoke and 

dust. 

In short, the man who comes to the modern city and 
looks at it analytically will discover that natural things are 
at a premium. Labor has shaped everything within sight. 
But evidences of labor do not appear in cities in the 
alone. The man plowing his ten-acre lot is ^«««'''3>- 
laboring. The farmer's reaping machine, his house and 
barn, his macadamized road, his asparagus bed, his peach 
orchard, — all these represent an outlay of labor. 

Again, modern industry is based on labor cooperation. 
The chair upon which you are sitting is the direct or indirect 



8o Elements of Economics 

result of the labor of thousands of men, women, and chil- 
dren. It was cut as standing timber in the woods of Michi- 
gan with axes and saws made in New England factories. 
It was hauled to a sawmill on bobsleds, the bolts of which 
were manufactured in Philadelphia, while the steel runners 
were made in Pittsburg. It was sawed by a band saw which 
in turn was produced in a great factory, employing several 
thousand men. Then, in the form of sawed lumber, this 
In modern chair was shipped to a furniture mill over a 
industry. railroad employing a hundred thousand men. 
When it reached the furniture factory, the lumber went 
through a great number of processes until it was converted 
into a chair; and each tool in each process was manufac- 
tured in a different city in a different part of the country 
by a different set of employees. Finally, the finished chair 
was shipped on a great railway system to the city, where it 
was handled by a trucking company, delivered to the whole- 
sale house, sold to the retail house, and eventually purchased 
by the present owner. 

Labor is one of the foundation stones of modern industry. 
Without labor, natural resources would be useless. Labor 
bears the same relation to land that mortar does to bricks ; 
it brings natural resources together into a permanent 
structure. 

In economics, when we speak of labor, we do not mean 
merely manual labor, but all effort either meatal or physical 
which is expended in producing economic utilities. The 
man who works with a pick and shovel is a laborer; so is 
Meaning the woman who works with a needle ; so is the 
of labor. -mdin who works with the pen ; so is the man who 
works with a brush ; so is the man who spends his time in 
directing the energies of others in order that they may assist 



American Labor 8i 

in production. All of these men are " laborers " in the 
economic sense because the laborer is the man who expends 
physical or mental effort in the creation of economic utilities. 

Labor is therefore an essential element in the production 
of wealth and in the maintenance of welfare, and every 
effort should be directed towards its conserva- conserva- 
tion. Since the conservation principle demands tion of labor: 
that the things of the present be used wisely and handed on 
to the future in the best possible condition, it may be ap- 
plied to labor in exactly the same way that it is applied to 
natural resources. 

If men and women are overworked, badly fed, poorly 
housed, their efficiency will be lowered and hence their 
ability to secure income will be lessened. As the family 
standard is low, the standard of their children Reason/or 
will be low from birth. Thus the inefficiency conservation. 
and low standards of one generation will be reflected in 
decreased efficiency and lower standards in the next genera- 
tion ; so that the evil conditions, which play so large a part 
in making men and women evil, will be perpetuated. 
Hence arises the necessity of adopting some policy of con-, 
serving the labor force of the country. 

Both the welfare of the community and the efficiency of 
labor depend upon labor conservation. How then may this 
conservation be effected ? Chiefly in two ways, — either 
through negative or positive measures. On the negative 
side, certain factors, like bad living conditions and insanitary 
or dangerous working conditions, must be corrected by 
purely repressive legislation. For example, laws 
are needed which will regulate the length of the 
working day; which will insure abundance of air and 
sunlight in both houses and factories; which will protect 



82 Elements of Economics 

women and children against industrial risks and accidents." 
This, however, is only one side of the question. It is no 
less desirable that the positive factors in the problem be 
considered. Welfare and efficiency depend upon education. 
Men in ignorance of working methods cannot do good work, 
and, since work to-day requires intelligence, it follows that 
the educated man will be the best worker. Furthermore, 
modern work, besides being arduous and monotonous, is 
wearing ; hence some form of recreation and relaxation must 
be provided in order that efficiency may be maintained. 

The Labor Force of the United States. — Since the Ameri- 
can Indian has never done consistent work, American labor 

is wholly of foreign origin. From the middle of 
Origin: , ^ , •, , 

the seventeenth century until tne present time, 

the country has been recruiting its labor from various parts 

of the world. 

In the New England colonies the Puritan element pre- 
dominated. Stern ideas of living, an abhorrence of pleas- 
ure, and a strong sense of the holiness of work characterized 
this group. The Puritans came largely from the cities of 
„, „ England, where they were artisans and trades- 

Engiand people. Their religion gave them deep convic- 
coiomsts. tions and high moral standards, and- they were 
persistent in their efforts to achieve any end upon which 
they bent their energies. They adapted themselves easily 
to the new surroundings, forming a strong~and persistent 
tj^e of man and woman well calculated to overcome the 
difficulties incident to the conquest of a wilderness. Because 
of their independence in rehgious and political matters, 
they developed into strong individualists. 

These early immigrants from England, together with 
those who came later from Scandinavia and north central 



American Labor 83 

Europe, made up a population whose home institutions and 
racial ideals were so nearly alike that there was no difficulty 
in welding them into a homogeneous group. Each new 
element which arrived from Europe was readily assimilated 
and formed an integral part of this solid mass. 

This New England population very readily conquered 
the adverse conditions of northern geography and climate. 
They built ships because shipbuilding materials and harbors 
were abundant. They traded with the West Indies because 
the fish which they caught all along the coast formed an 
exchangeable commodity when salted and transported into 
the southern countries. They carried on manufacturing 
because the numerous rivers supplied much valuable water 
power. In short, the New England population measured 
up to the demands of the new surroundings and utilized 
them in a manner beneficial to themselves. 

While the people who came to New York, Pennsylvania, 
New Jersey, and Delaware were of a somewhat different 
group, the basic elements of this population were the same 
as those of the New England settlers. The Quakers of 
Pennsylvania, New Jersey, and Delaware came The Middle 
largely from England. They were soon joined '^"lomsts. 
by groups of Germans, Swedes, and Scotch-Irish, who settled 
on the land, developed the agricultural resources, and paid 
considerable attention to the establishment of manufactur- 
ing. In New York the Dutch were the first settlers, but 
they soon were reenforced by groups of English and Germans. 

Therefore, it may be seen that the general characteristics 
of the New England settlers were distributed pretty freely 
throughout the Middle Atlantic colonists. Many of the 
newcomers came to America because they believed in a 
political or religious principle and were willing to make 



84 Elements of Economics' 

sacrifices for it. If to these qualities are added the perse- 
verance and adaptabihty for which the New England colo- 
nists have become justly famous, a reasonable picture of this 
middle group is presented. 

The people of the Middle colonies, like those of New 
England, developed industry rather than agriculture for 
two reasons, — first, because their agricultural land was 
inferior in quality, and, secondly, because the opportunities 
for developing industry were so abundant. Not only could 
ships be built, but fishing could be carried on profitably. 
It was later discovered, too, that the deposits of iron could 
be worked, that hides could be manufactured into various 
products, and that the textile industry was not only possible 
but lucrative. 

In the Southern colonies, agricultural land was abundant 
and fertile. Then, too, the climate was suited to the pro- 
duction of tobacco, rice, indigo, and cotton. While indus- 
The South- trial resources were slightly developed, the 
em colonists, gouth dcvoted a great portion of its energy to 
agriculture because from that occupation the greatest gains 
could be secured. Then, too, the land in the North was 
divided into small holdings, while in the South the land was 
laid out in large plantations worked by indentured servants 
and slaves. 

Slavery did not prevail in the North because there was no 
economic way in which the slave could be "used. Slavery 
is desirable only when a large number of men can be worked 
together under the charge of an overseer. In industry 
this is not possible. But since it is possible in agriculture, 
large groups of slaves were used profitably throughout 
the South. While the labor force of the North was com- 
posed almost exclusively of people working for their own 



American Labor 85 

advancement, that of the South consisted chiefly of three 
classes, — the landowners, the indentured servants, and the 
slaves. 

The early population of the United States was drawn al- 
most exclusively from Africa and northwestern Europe. 
With the exception of the slaves, nearly all of those who 
came to America were members of one of the Baltic stocks. 
They had all developed their ideas and ideals The 
in the same general part of the world and along conclusion. 
the same general lines. In the North these settlers were 
therefore easily assimilated and developed into one compact 
group. In the South, however, the presence of a body of 
people who could not assimilate with the whites made the 
development of a homogeneous group impossible. 

By the middle of the nineteenth century new population 
elements migrated. Between 1840 and 1850 the food short- 
age in Ireland sent millions of immigrants to the United 
States. Between 1850 and 1880 the political and economic 
disturbances in Germany were responsible for the immigra- 
tion of millions more. Since 1880, however, the source of 
immigration has been gradually shifted from Later 
northwestern Europe to southeastern Europe. _,, ' ' 

'■ ^ I fie newer 

Besides this European shift, bringing Slavs and elements. 
Italians to the Central States, a large number of French 
Canadians have also come into New England. Thus, while 
the Baltic countries of Europe furnished the early American 
immigrant, the central and southern European countries 
are responsible for most of those who have migrated during 
the last three decades. 

In 1900 there were, roughly speaking, thirty million wage 
earners in the United states. Of this number, six millions 
were born abroad, while five millions were born in this 



86 Elements of Economics 

country of foreign parents. Thus, a large portion of our 
labor force, even at the present day, is made up, not of 
y^^ native Americans, but of foreigners or the chil- 

resuiting drcu of foreigners. If we are to maintain the ef- 
pro em. ficiency of labor, the problem which we are now 
confronting is to instill into this labor population the ca- 
pacity for work, the power of application, the inteUigence, 
the energy, the perseverance, and the adaptability in de- 
veloping natural resources which characterized the early 
settlers. 

TOPICS FOR CLASS DISCUSSION 

1. To what extent is labor essential in production ? 

2. What is the relation between the amount of labor expended on an 
article and its selling price ? 

3. Should labor be the sole element in determining the cost of an 
article ? 

4. Has labor become more or less important with the development 
of machinery ? 

5. Does the average street laborer work hard ? 

6. Of the street laborers that you have observed, which race works 
hardest ? 

7. What environmental advantages have American laborers over 
laborers in Europe ? 

8. Point out the most salient characteristics in the original labor 
force of the country. 

9. Can a distinction be made between the original labor force of the 
country and the group of immigrants at present coming to the coun- 
try? 

10. Has the Anglo-Saxon race any peculiar economic characteristics ? 

11. Upon what grounds do Anglo-Saxons base their claim to leader- 
ship ? 

12. What steps can the country take to Americanize immigrants ? 

13. What traits do the immigrants possess that are not possessed 
by Americans ? 



American Labor 87 

14. Will immigration be of ultimate economic advantage to the 
United States ? 

15. Which do you consider more important : conservation of human ' 
energy or conservation of natural resources ? 

REFERENCES 

The Colonies — R. G. Thwaites. 
Students' History of the United States — E. Channing. 
Industrial History of the United States — K. Coman. 
Economic History of the United States — E. L. Bogart. 
Races of Europe — W. Z. Ripley. 



CHAPTER XI 

Immigration 

I. Causes of immigration 

1. The object in view 

2. Military and industrial reasons: 
a. The European need 

h. The American need 

3. Political and religious aspect : 

a. The early cause of immigration 
h. How it reappears to-day 

11. Effects of immigration 

1. From a racial standpoint: 

a. The groups of immigrants 

h. The character of the immigrants : 

(i) Difference between Northern and , Southern 
races 

(2) Why Northern races are preferable 

(3) What the new elements may bring 

2. From an industrial standpoint: 
a. The labor affected 

h. Effect of immigrant's standard 

c. Findings of the commission 

d. The conclusion 

Causes of Immigration. — The peaceful migration of 
great numbers of people from one nation to another is a 
modern phase of an old problem. Formerly, if a land 
flowed with milk and honey, kings led their armies against 
Object in it, enslaved or drove out the inhabitants, and 
^'®^- took possession of the fields and cattle. Under 

such circumstances the movement of a few thousand men 
from one State to another constituted a menace to social 



Immigration 89 

welfare. But to-day millions of persons move from one 
nation to another without attracting more than passing 
notice. The movement, instead of being warlike, takes the 
form of a peaceful conquest of natural resources. 

The monarchs of the Old World in order to insure the 
permanence of a large emergency army wish to keep at 
home as many of their subjects as possible. This necessity 
of military service is one of the great causes of emigration 
from Europe. On the other hand, in America, ..... , 

we do not emphasize an increase in our military industrial 
army, but we do look continually for an increase '■®^^°°^* 
in our industrial army. It is upon industrial recruits that 
we depend, just as the European sovereign depends upon 
military organization. The immigration of a group of 
strong, intelligent men and women, therefore, makes a 
welcome addition to the ranks of American labor. 

Religious and political persecution furnish another motive 
for emigration. The best elements among the early colo- 
nists left the Old World because they could not secure there a 
reasonable toleration of their political or religious p .. . . . 
views. They were progressive thinkers, — men religious 
who had so great faith in their convictions that ^^^^^^' 
they were willing to leave their mother country and make 
a new home in a new world. A study of present immigration 
shows that some people, notably the Jews, are still coming 
to America for the same reasons. 

Effects of Immigration. — In order to understand clearly 
the effect of immigration, we must first know From a 
the character of the immigrant. The three groups ^^^^^^ 

i- T- 1 T-. 1 • -NT 1 standpoint: 

of European races, — the Baltic or Northwestern Groups oj 
races ; the Alpine or central European races ; immigrants. 
and the Mediterranean or Southern races, — differ some- 



go Elements of Economics 

what. From the Baltic races have come the Scandinavians, 
the Germans, the Enghsh and allied groups ; from the Cen- 
tral European races, the Slavs, Russian Jews, Austrians, and 
Hungarians ; while from the Mediterranean countries have 
come the Italians, the Greeks, and the Syrians. 

With this change in the source of immigration from the 

northwest to the southeast of Europe there has been a 

corresponding change in the character of the 

Character of ij^jj^jarants thcmsclvcs. The Baltic races were 

tmmtgrants. ° 

more highly educated, more easily adaptable 
to new surroundings, and, in addition to these two valu- 
able characteristics, furnished a large number of skilled 
artisans and mechanics. In contrast with them, the 
Alpine and Mediterranean peoples show a high percentage 
of illiteracy and are prepared to do little except unskilled 
work. 

Whether one race is inherently more efficient than another 
we are not prepared to decide. It is apparent, however, 
that at the present time the immigrants of northern Europe 
are better educated and better adapted to our standards 
than the immigrants of southern Europe. The North 
Europeans are more in sympathy with our political and 
industrial methods because their institutions approximate 
more closely to ours than do the institutions of southern 
Europe. 

On the other hand, it is questionable whether the various 
groups of immigrants are not bringing to this country some- 
thing which it really needs. For example, the Polish race is 
essentially musical and its aesthetic standards are very high ; 
the Russian Jews are highly intellectual ; and the Italians 
are bringing to America artistic abihty of a high order. If 
these various qualities, which have been more highly devel- 



Immigration 91 

oped in some countries than in others, can be combined with 
the industrial efficiency of the American, the result may be a 
race of people more advanced than the world has ever 
known. 

Apart from the racial contribution which the immigrant 
makes to this country, what is his effect upon the wage- 
working part of our population ? Disregarding the children 
of the immigrant, who enjoy the benefit of the From an 
public school system, and considering only the '"'^"stnai 
untutored immigrant himself, it is clear that the The labor 
average unskilled immigrant can have little or (^Sected. 
no effect except upon semi-skilled and unskilled labor. 

The Russian, Hungarian, or Italian immigrant comes from 
a country where the standard of living of the working popula- 
tion is low. To him, windows and doors are often luxuries. 
In some places in Russia even a wooden floor is considered 
a boon. Consequently, to many of the immigrants, the 
tenement house of our great cities is a paradise, i^nmierant's 
The immigrant will work for a low wage because standard and 
he is accustomed to poor food and a small amount ^''^ 
of clothing. The presence of large numbers of immigrants- 
in any community will therefore result in a temporary 
lowering of the wage standard. In many localities this has 
actually happened. As a result, it is rare in those localities 
to find American-born persons working as common laborers, 
because, accustomed to a high standard, they are unable to 
exist on the wage which the immigrant will accept. 

The Immigration Commission, which made its report to 
Congress after an extended inquiry into the various sources, 
character, and effects of immigration, concluded that the 
present immigration was detrimental to the best interests of 
the United States. Modern immigration, the Commission 



92 Elements of Economics 

holds, tends to lower social and industrial standards. The 
immigrant, a low-standard man in the country 
oj the from which he comes, fails to grasp the signifi- 

Commission. ^g^j^^^g ^f ^j^g higher American standards. He is 
willing to live in more congested quarters, to accept a lower 
standard of diet, and to work for less wages. The American, 
accustomed to higher standards, is unwilling to come down 
to the lower level. In the competition which follows he 
is inevitably beaten because he must either lose his 
position or accept the standard set by the immigrant. 

Therefore, whatever the ultimate effect of immigration, 
its present influence is clear. In the future the immigrant, 
or at least his American-taught children, will doubtless 
dernand higher standards of life and work ; but so long as a 
million men and women annually leave the poorer districts 
of Europe and bring their low standards of life to the United 
jfig States, the American laborer will be confronted 

conclusion. i3y ^ competition which will ultimately lower his • 
standards and compel him to seek work elsewhere. It is 
perfectly evident, therefore, that from the standpoint of 
American labor, foreign immigration should be so restricted 
and regulated that the present standard of living of the 
native American may be maintained. 



TOPICS FOR CLASS DISCUSSION 

1. Point out the economic effects of immigration in the United 
States. 

2. Would the American labor force be more efi&cient without the 
immigrant ? 

3. How would heavy unskilled tasks be performed if the immigrant 
were excluded ? 

4. What effect has immigration on the unskilled labor wage ? 



Immigration 93 

5. Would it be desirable to bar out all Chinese and Japanese immi- 
grants ? 

6. Account for the low standard on which the immigrant is willing 
to live. 

7. Will Greeks, Italians, and Poles make good American citizens? 

8. What is the underlying reason for permitting immigration into 
the United States ? 

9. Name the more important motives by which persons are 
{a) induced to leave the country of their birth; {b) attracted to other 
countries. 

10. Explain the great fluctuations of the movement of immigrants 
to the United States since 1820. 

11. What change in the prevailing character of our immigrants has 
occurred within the last generation ? 

12. It is argued that cheap immigrant labor is like machinery — 
an added aid in production which relieves the (native) laboring class 
from heavy and disagreeable toil. Is the analogy true ? 

13. Will the present immigration be of ultimate economic ad- 
vantage to the United States ? 

14. Is the manufacturer's argument for cheap immigrants valid 
from the point of view of society in general ? 

15. Should immigration be restricted? If restrictions are im- 
posed, should they limit the number of immigrants, or fix a test of 
the quality of immigrants, or do both ? 

16. Would restriction of immigration be justified if the congestion, 
of immigrants in cities and along the seaboard could be prevented, 
and the foreign elem-ents distributed over the whole country ? 

REFERENCES 

The Immigrant Tide — E. A. Steiner. 

On the Trail of the Immigrant — E. A. Steiner. 

Immigration — P. F. Hall. 

Reports U. S. Commissioner of Immigration. 

Races of Europe — W. Z. Ripley. 

Emigration and Immigration — R. Mayo-Smith. 

Races and Immigrants in America — J. R. Commons. 



CHAPTER XII 

The Risks or Labor 

I. Industrial accidents 

1 . Kinds of accidents : 

a. Railroad accidents : 
(i) Their number 

(2) The causes 

(3) The remedy 
h. Mining accidents : 

(i) Their number 

(2) The situation abroad 

(3) The remedy 

c. Factory accidents 

d. Building accidents 

2. Total annual number of accidents 

3. The labor affected 

4. Effects of accidents 

11. Dangerous trades 

1. Chief source of danger 

2. Danger from coal dust : 
a. Character of the lungs 
h. Effect on the lungs 

c. How preventable 

3. Danger from lead poisoning: 

a. Effects on the system ~ 

h. How preventable 

4. Other dangerous trades 

The risks to which labor is subjected in modern industry 
may be grouped under two heads : first, those involved in 
industrial accidents, and secondly, those arising from dan- 
gerous trades and occupations. 

94 



The Risks of Labor 95 

Industrial Accidents. — Industrial accidents include those 
catastrophes which either temporarily or permanently 
destroy the efficiency of the wage earner. They may be 
classified according to occupation as railroad, mining, 
factory, or building accidents. 

The material regarding railroad accidents is compiled 
by the Interstate Commerce Commission and must be fur- 
nished by the railroads as part of their reports to the Com- 
mission. No other American accident statistics Railroad 
are collected in such careful detail. In 1907, accidents. 
11,839 persons were killed and 111,016 injured in railway 
accidents. A study of the decade 1897 to 1907 shows a 
steady increase in the number of accidents. In 1897 one 
railway employee was killed for every 486 employed, while 
in 1907 one was killed for every 369 employed. Railroad 
casualties are, therefore, not only appalling in number but 
increasing in frequency. 

That there is no justification whatsoever for this increase 
is proved by conditions in foreign countries, where the infre- 
quency of railroad accidents is in marked contrast to our 
own waste of human fife. The causes of this waste of life 
through railroad accidents are found both in individual 
action and in corporate management. So long as indi- 
viduals are careless, accidents will occur ; and so long as 
corporations fail to supply devices for the safety of their 
employees and passengers, the same result will follow. 

A remarkable proof of the fact that working conditions 
are largely responsible for these accidents is furnished by the 
beneficial effect of the federal law requiring automatic cou- 
plers. In 1893, of the 20,444 casualties among trainmen, 
9063, or 44.33 per cent, were " coupling accidents." But 
in 1908, although the total number of casualties had in- 



96 Elements of Economics 

creased almost 100 per cent, the number of accidents 
due to coupling had fallen to 3385, or 8.8 per cent of the 
total casualties. Equally effective results would doubtless 
be secured by other forms of federal regulation concerning 
the length of runs, the character of signals, and the number 
of working hours. Railway accidents are enormous in 
number, but by wise precaution and stringent legislation, 
they can be largely eliminated. 

Accidents in coal mines are the most common of the 
mining accidents. The record of coal mine accidents in 
the United States is unsatisfactory because it consists 
merely of a collection of the reports of state mine inspectors 
who are in some cases anything but efficient. For 1908, 
Mining 2450 miners were killed and 6772 were injured. 

accidents. " ^hc death roll in the coal mines of the United 
States in 1908 was smaller than that in 1907, but with the 
exception of 1907, it was the largest in the history of the in- 
dustry, while in the number of men injured the record for 
1908 exceeds that of even 1907." Disregarding then the 
year 1907, in which the number killed was phenomenal, it is 
safe to say that there has been a steady increase from year 
to year, not only in the actual but also in the proportional 
number of men killed in mining accidents. 

This increase cannot be accounted for merely by the 
growth of the mining industry. A recent bulletin on coal 
mine accidents dealing with conditions abroad proves this 
conclusively. It states : "In all the European coal-pro- 
ducing countries the output of coal has increased greatly 
during the last ten years, but the number of deaths per one 
thousand miners, instead of increasing as in this country, 
has undergone a marked and decided decrease. This de- 
crease has been due to the effect of mining legislation in those 



The Risks of Labor 97 

countries for the safeguarding and protection of the Hves 
of the workmen, and has been made possible by govern- 
ment action in estabHshing testing stations for the study of 
problems relative to safety in mining, including the use 
of explosives." 

The success of foreign governments in preventing min- 
ing accidents has been due primarily to their regulation of 
safety lamps and of the character and use of mine explosives. 
Nothing could be more elementary and simple, and yet the 
United States has made but little effort to meet the problem 
in this way. 

Turning now to accidents in manufacturing, we find that, 
because of inefficiency and lack of uniformity in the work of 
state factory inspectors, it is impossible to determine accu- 
rately the total number of such accidents. However, the 
best statistics of factory accidents have been compiled from 
the reports of the New York Bureau of Labor 
Statistics. From 1901 to 1906 there were 39,244 ^^^1^^^^^ 
accidents reported. Of this number, 864 were 
fatal; 6580 involved permanent disability; and 32,722 
temporary disability. Thus, of the factory accidents in 
New York State, 2.2 per cent were fatal; 16.8 per cent in- 
volved permanent disability ; 80.8 per cent temporary dis- 
ability, while .2 per cent were unclassified. 

The accidents in building trades have never been recorded 
except in a fragmentary form. It is therefore impossible 
to say anything definite regarding them. The Building 
only accurate information that can be secured «<^"^e«^^- 
comes from the unions which pay benefits. The accident 
features of these unions furnish material from which may be 
made an estimate of the number of union men killed and 
injured in each trade. 



98 Elements of Economics 

Enough has been said, however, to show that the total 
loss to the community caused by accidents of one kind or 
Total annual another is enormous. An estimate of this loss 
number of has been made by Arthur B. Reeye, who places 
the total number of men, women, and children 
killed and injured each year through industrial accidents 
at five hundred thousand. This figure is as nearly accurate 
as possible, for it is arrived at by five different computations. 

It is not true, as it is currently supposed, that these acci- 
dents happen only to the careless, unskilled laborer, the 
immigrant, and the American of low standard. Not only is 
the semi-skilled trainman a victim of the railroad accident, 
The labor but also the conductor and the skilled engineer, 
affected. ^ Pittsburg investigation shows that of 440 men 
killed, 46 per cent were earning over fifteen dollars a week, 
and nearly 29 per cent over twenty dollars a week. Thus 
the social cost of accidents is intensified by the fact that effi- 
cient as well as inefficient workmen are victimized. 

The burden of accidents falls on the family and on the 
community. The accident destroys the worker. The 
worker is the mainstay of the family, which is itself the basis 
of the community. While children and old people escape 
Effects of industrial accidents, the breadwinners upon 
accidents. whom they depend for subsistence are struck 
down at the rate of half a million every year. Industrial 
accidents, therefore, constitute one of the causes of indus- 
trial inefficiency. Of the half million persons annually killed 
and injured, the majority are wage earners with families 
depending upon them. Their death or injury, therefore, 
affects the efficiency of the coming generation. 

Dangerous Trades. — Another danger to which labor 
is subjected results from the nature of the occupation. 



The Risks of Labor 99 

While fortunately not numerous, certain trades do exist 
where the death rate is several times higher than the death 
rate in the community at large. When a workman enters 
such a trade and accepts such work, he signs a contract with 
the undertaker. 

The chief source of danger in these occupations arises 
from the presence of dust, which, entering the system through 
the lungs or alimentary canal, proves injurious to the 
worker. Dust may also irritate the skin, but its effects 
here, except in the cases of antimony smelters chief source 
and arsenic grinders, are usually not serious. °* danger. 
In cases where dust enters the alimentary canal, stomach 
and intestinal troubles result; when it enters the lungs, 
tuberculosis develops. According to the industry giving 
rise to it, dust is of five kinds : (i) metallic dust, (2) min- 
eral dust, (3) mixed dust, (4) animal dust, and (5) vegetable 
dust. 

Thomas Oliver in his " Dangerous Trades " says, " Were 
it not for dust, fumes, or gas, there would be little or no 
disease due to occupation, except such as might Danger from 
be caused by infection, the breathing of air ^°^ ^"^* • 
poisoned by the emanations of fellow-workmen, and expo- 
sure to cold after working in overheated rooms." Dust, 
then, is the most prevalent source of danger ; and its most 
injurious effect is on the lungs. 

The normal lung is a Hght, spongy mass, interwoven with 
minute bronchial tubes. Nature planned to exclude foreign 
substances from these tubes by placing hair in the nose and 
large tubes, and by guarding the whole passage- character of 
way with the vocal chords and the cartilage '^«^Mwgs. 
plates. These devices prevent any ordinary amount of 
dust from reaching the lungs. But in the coal mines there 



loo Elements of Economics 

is more than an ordinary amount. A visitor, long after 
leaving a breaker in which coal is cleaned dry, will continue 
to expectorate dust or coal particles which have been ar- 
rested in the larger passages. A long exposure to dust, 
however, dulls the sensibility of the membranes ; efforts 
are no longer made to expectorate the dust, and the particles 
enter the small tubes of the lungs and become imbedded 
in the lung tissue. 

Thomas OHver states that " In a coal miner's lung 
there can be observed small masses of cells, deeply laden 
with carbon particles surrounded by a hardened zone of 
altered lung, numerous black streaks underneath the 
Effect on plcura or covering of the lungs, ink-like dots 
the lungs. [^ |-]^g walls of the small bronchi, and enlarge- 
ment with pigmentation of the bronchial glands." The 
entrance of dust into the lung finally converts it into " a 
hard and almost solid organ, incapable of carrying on the 
work of respiration." 

A similar effect is produced by other forms of dust. 
Examinations show particles of grit embodied in the tissue 
corresponding exactly to the dust grit of the trade in which 
the victim worked. Therefore the man who goes to work 
in a dusty trade prepares his lungs for a cordial reception 
How pre- to tubcrculosis or any other bacteria which attack 
ventahie. weakened lung tissue. However, much can be 
done in the way of precaution and prevention. By screen- 
ing the coal wet, the dust in the coal breaker may be re- 
duced ; and by the use of suction wheels, blowers, and other 
mechanical devices, the dust in the factories may be rendered 
less dangerous. 

There are other occupations besides mining that are full 
of risk and danger. Certain substances used in industry 



The Risks of Labor loi 

are always injurious to life and health. Among these 
substances none is more widely used nor more really danger- 
ous than lead in its various forms. Lead poison- Danger 
ing occurs in several trades, although it is most poisoning: 
severely felt in the manufacture of white lead, its ejects. 
Poisoning from lead may be acute or chronic. The symp- 
toms of both forms are colic, " wristdrop," loose teeth, and 
a blue line on the gums. 

Ventilation, an abundance of nutritious food, abstinence 
from all excess, especially alcoholic, the use of special hel- 
mets, together with short hours in the factory, ^^w ^re- 
all assist in decreasing the dangers from lead rentable. 
poisoning. There is no other industry in which the dangers 
are more acute and where the necessity of precaution and 
preventive measures should be more emphasized. 

The production of phosphorus, mercury, and arsenic ; 
the chemical trades ; rag sorting ; wool sorting ; work in 
compressed air chambers, — all involve dangers q., 
of varying degree. The reference to mining and dangerous 
the lead industry will, however, suffice to indicate ^^^ ^^' 
the character of dangerous trades, their effects, and the 
possibility of remedying them through wise preventive 
measures. 

TOPICS FOR CLASS DISCUSSION 

1. Are industrial accidents inevitable? 

2. In a case where persons are killed and injured in a wreck due 
primarily to a defective air brake, what shoiild be done ? 

3. To what extent is the community at large responsible for 
accidents ? 

4. Where does the ultimate burden of industrial accidents rest ? 

5. Should a manufacturer be held personally responsible for an 
accident due to unguarded machinery ? 



102 Elements of Economics 

6. What would be the most effective method of preventing acci- 
dents ? 

7. Discuss workmen's compensation as a remedy. 

8. Analyze the street accidents of your city, and develop a means 
of prevention. 

9. What is a dangerous trade ? 

10. Why is lead poisoning particularly disastrous ? 

11. What remedies exist for the dangers involved in dangerous 
trades ? 

12. Are consumers justified in using the products of such trades? 

13. Several European governments have abolished the manufacture 
of white phosphorous matches because of the danger involved in the 
industry. Would the states in which white phosphorous matches are 
made be justified in adopting similar measures ? 

REFERENCES 

Annals American Academy of Political and Social Science — July, 

1911. 
The Pittsburg Survey — P. U. Kellogg, Editor. 
Industrial and Personal Hygiene — G. M. Kober. 
Diseases of Occupation — T. Oliver. 
Dangerous Trades — T. Oliver. 



CHAPTER XIII 

Some Labor Problems 

I. Child labor 

1. Its English origin 

2. Its extent in the United States 

3. Its evil consequences : 
a. On the child : 

(i) Physically 

(2) Mentally 

(3) Morally 
h. On family life 

c. On society 

d. On the product 

4. Its regulation 

II. Women workers 

1. Why women enter industry: 
a. Minute subdivision of labor 
h. Acceptance of lower wages 
c. Loss of home employment 

2. Arguments against 

3. Arguments in favor of 

HI. Unemployment 

1. Causes: 

a. Personal causes : 
(i) Malnutrition 
(2) Sickness and accidents 

h. Industrial causes 

2. Effects : 

a. On the unemployed 
h. On the family 

3. The outlook 

103 



I04 Elements of Economics 

There are several labor problems which are continually 
before the public for discussion and solution. Prominent 
among them are, — (i) the problem of child labor, (2) that 
of women in industry, apd (3) that of unemployment. 

Child Labor. — The problem of child labor had its real 
origin in England in the last half of the eighteenth century 
when the factory system was first being developed. _ Manu- 
facturers were in great need of unskilled labor to operate the 
new machinery. Poorhouses and orphan asylums were over- 
crowded with just this kind of labor. As a result, these 
institutions gave up their children to the manufacturers, 
who in certain cases even agreed to take one insane child 
with every twenty healthy ones. The children were 
Its English quartered in barracks and worked in day and 
origin. night shifts, the day shifts sleeping in the beds 

which the night shifts left and vice versa. No provision 
was made for sanitation, and the children were fed on the 
worst kind of food. These conditions, culminating in an 
outbreak of disease and epidemics, led to the passage of 
the Act of 1802 for the regulation of the health and morals 
of apprentices. Finally, in 1847, ^ much more comprehen- 
sive and effective law regulating the labor of all women and 
children in industry was passed. 

Child labor in the United States is merely a recurrence of 
an Old World phenomenon. In 1900 there were in the 
Its extent in United States over one and three quarter millions 
United of children between the ages of ten and fifteen 

employed in gainful occupations. Of these 
1,750,178 children so employed, — 
60.7 % were engaged in agriculture ; 

16.2 % were engaged in manufacturing and mechanical pur- 
suits ; 



Some Labor Problems 105 

15.9 % were engaged in domestic service; 
6.9 % were engaged in trade and transportation; 
0.2 % were engaged in professional service. 
Although the largest number of children are employed in 
agriculture, child labor is usually associated with manu- 
facturing, for it is here that its worst evils are manifested. 

There is no doubt about the evil consequences of employ- 
ing children in industry. From whatever stand- j^^ ^^^ 
point the problem is regarded, child labor is conse- 
injurious. It is harmful to the child, to family i"®'^^®^- 
life, to society, and to the industrial product. 

On the physical side hard labor is injurious to young 
children because their bodies are still developing. Through 
expression, the body of the growing child is developed most 
surely and most completely. The originalities of a child 
" arise through his action, struggle, trial of things for him- 
self and in an active way." But the child of Effect on 
twelve or fourteen who stands at the machine ^^^ '^''■^^'i- 
tying threads for eleven hours a day is not growing through 
expression. He is being narrowed by an unvarying, mo- 
notonous impression. He is losing the opportunity for the 
spontaneous expression of the new life that comes only 
through play. 

From a mental standpoint, child labor is a process of 
mind-stunting. First, the child is removed from the 
possibility of an education. He is taken from the school and 
placed in the factory, where he no longer has an opportunity 
to learn. Then he is subjected to monotonous toil for long 
hours, until his mind is dwarfed into the familiar form of the 
unskilled workman. 

The moral effects of child labor are also bad. Entering 
the workroom with adults of all t3rpes of morality and im- 



io6 Elements of Economics 

morality, the child ceases to be a child in knowledge while 
it is still a child in ideas. There is no home influence or 
school influence to ward off the dangers, no mother or teacher 
to point out the hidden rocks. 

The effects of child labor on family life are obvious. In 
many localities in the South, where industry is developing 
Effect on for the first time, the children work in the mill 
family life, ^f^'l\}l their parents. If either parent stays at 
home, it is frequently the father. Under these circumstances 
the mother has no opportunity at home to maintain a fam- 
ily standard. Neither in their parents nor in their homes 
do the working children see those qualities which make the 
home the ideal of human happiness. 

The low wages of child workers add little to the family 
income. It is no uncommon thing to find children working 
for two or three dollars a week. As late as 1902 the Anthra- 
cite Strike Commission found one girl who was given a 
dollar and eighty cents for sixty night hours of work. 

It is equally clear that child labor injures society. By 
making of the boy an unskilled worker incapable of earning 
large means and by making of the girl a woman incapable 
of becoming a strong normal mother, child labor inevitably 
tends to undermine social Hfe. By throwing the boy out 
Effect on upon the world too early in life and making him 
society. fg^^e its responsibilities, child labor promotes 

deHnquency. The inmates of houses of correction were 
usually working boys when they were arrested. The school- 
boy is almost a negligible factor there. Both family and 
individual life are distorted by child labor. 

Finally child labor affects the product of industry. The 
treasurer of the Alabama City Cotton Mill wrote to his 
agent : " Every time I visit this mill, I am impressed with 



Some Labor Problems 107 

the fact that it is a great mistake to employ small help 
in the spinning room. Not only is it wrong from a humani- 
tarian standpoint, but it entails an absolute Effect on 
loss to the mill." Child labor is thus wasteful (he product. 
to industry. Manufacturers everywhere are being forced to 
this viewpoint. Child labor is undoubtedly cheap labor, but 
the product is cheaper than the labor involved in its creation. 

Consequently, from every standpoint, child labor is un- 
desirable. It decreases family and social welfare and 
lowers the standards of the future citizen as well as of the 
industrial processes in which it exists. In view Regulation 
of these disastrous effects of child labor, numer- of child 
ous laws have been passed which aim to exclude 
from work children under fourteen and to safeguard the 
working lives of children from fourteen to sixteen. 

Women Workers. — Another problem of growing impor- 
tance is that of women in industry. A half century ago 
woman played an insignificant role in industrial life ; to-day 
there is not an important branch of industry where she is 
not found. In 1900 there were about five million women 
employed in all forms of gainful occupations in the United 
States. 

The causes of this advent of women into industry are 
obvious. First of all, the minute subdivision of labor has 
given rise to such a degree of specialization that there are 
innumerable small operations that women can Causes: 
easily perform. For example, a girl may paste ^*""'f . 

•' ^ JT ' o J f subdtvtston 

corners on paper boxes, or stamp out pieces of of labor. 
paper to make Christmas cards. Without previous training, 
she will, in a short time, learn to manage a machine. At 
first her efficiency will not be high, but she will earn at least 
enough to keep body and soul together. 



io8 Elements of Economics 

Women, having only themselves to support, are willing 
to accept a much lower wage than men. Therefore, when 
they enter industries in competition with men, the latter 
are frequently forced out altogether. For ex- 
ample, men formerly rolled cigars at the rate of 
seven-ty-iive or eighty cents a hundred. Now the same 
labor is performed by girls at the rate of thirty-five or forty 
cents per hundred. 

The most potent cause of woman's entering industry, 
however, is found in her loss of home employment. For- 
merly women had so much to do at home that their time 
was fully occupied. Spinning, weaving, the manufacture 
Loss of home of clothiug, and the preparation of foodstuffs, all 
employment, engaged their attention. But the seat of these 
operations has now been removed to the factory. Very Httle 
sewing is now done in the home, and the cooking is decreas- 
ing rapidly. Cleaning is the only part of " woman's 
sphere " left her; it is small wonder, then, that she goes to 
the factory to escape this drudgery. 

As to the advisability of woman's entering industry, 
opinion is divided. Those who are opposed to this tendency 
point out that the chief function of woman is to be a home 
Arguments maker and to bring up her children properly; 
^^ll that this work still engages enough of her time 

women do o 

working. to prevent her from undertaking outside employ- 
ment; that factory labor injures women, and through 
them, their offspring; and that finally the presence of 
women in industry cuts down the wages of men. 

On the other hand, those who are in favor of this tend- 
ency take the stand that, because of the development of 
the factory system, there is comparatively little left for 
women to do at home ; that, because skill and dexterity 



Some Labor Problems 109 

are chiefly required, labor is not injurious to women physi- 
cally; that, by entering industry, women are Arguments 
made independent and equal to men so that they ^^ ^^^^^ °^- 
need not be forced into unhappy marriages ; and that, 
finally, it is not fair to force upon woman the drudgery of 
cleaning and cooking which constitute so large a part of 
the regular housework. 

Unemployment. — The problem of the unemployed is a 
constant one. Unemployment may be due to 

\./&US6S • 

personal causes, such as malnutrition, sickness, 

and accidents, or to industrial causes, such as industrial 

crises, labor troubles, and seasonal and casual trades. 

That malnutrition is a very real cause of unemployment 
was well illustrated in England during the winter of 1907- 
1908. An unemployed farm colony was started and the 
unemployed from London were set to work on the land. 
During the first few weeks many of the men were so weak 
from lack of food as to be unable to do more than two or 
three hours' work a day and that of the poorest sort. 
After being maintained for several weeks on personal 
good food, these same men were doing high-class ^'^«*•^"• 
work. Just how extensive is the unemployment caused 
by sickness and accidents we have no way of knowing. 
That sickness and accidents exist is certain, and that they 
cause unemployment is obvious ; but thus far the meager 
character of the material on the subject will not permit 
more than a bare reference to them as factors in the prob- 
lem. 

The industrial causes of unemployment may be grouped 
imder the head of seasonal trades, industrial crises, labor 
troubles, and casual trades. Seasonal trades are common, 
and they inevitably mean unemployment. For example, 



no Elements of Economics 

all outside construction work can offer emplojnnent at cer- 
tain times of the year only. The effects of industrial crises 
and labor troubles upon unemployment are also apparent. 
Industrial A chart of the coal industry from 1890 to 1905 
causes. shows that from 1895 to 1899 the work was very 

slack because of the persistence of an industrial crisis, while 
in 1902 because of the coal strike of that year the anthra- 
cite mines worked only one hundred and sixteen days, — 
about thirty-eight per cent of the total possible working 
days. A very frequent cause of unemployment exists in 
certain trades known as casual trades, — those requiring 
labor a day here or a week there, but never regularly or 
systematically. 

The effects of unemployment are twofold. In the first 
place, the unemployed himself is affected. Idleness leads 
to some form of dissipation, usually drunkenness. The 
unemployed, in his attempt to secure work, may use freight 
trains as a means of getting from place to place. This 
happy-go-lucky life, once tasted, proves too attractive; and 
the laborer, freed from all restraining influences, soon be- 
Effectsof comes a confirmed tramp. If he is a skilled 
unempioy- laborer, the unemployed will lose his " knack " 
™®'^*' of work ; if unskilled, his physical strength. In 

any event, this idleness will be a drain upon his resources 
and cause his efficiency to be lowered. But the effects of 
unemployment do not cease with the unemployed. They 
extend to his family. The irregular life of the father com- 
municates itself to the children; and the lack of food, re- 
sulting from a lack of income, means malnutrition for the 
whole family group. 

No definite remedy can be prescribed for unemployment. 
So far as the personal causes are concerned, some relief 



Some Labor Problems in 

might be sought in sickness and accident insurance. This 

policy is pursued in many European countries. 

On the industrial side, the key to the situation 

is found in industrial stability. Interstate employment 

bureaus, and government work provided in times of serious 

depression, will do much to relieve the worst features of the 

present situation. 

TOPICS FOR CLASS DISCUSSION 

1. What is the chief disadvantage of child labor? 

2. What are the effects on children of early employment ? 

3. What effect has child labor on the adult laborer ? 

4. Is child labor necessary to the production of captains of in- 
dustry ? 

5. What is the effect on children of keeping them away from work 
until they are sixteen ? 

6. Who is the chief gainer from child labor ? 

7. Who is the chief loser ? 

8. Are parents responsible for chUd labor ? 

9. To what extent are the children themselves responsible ? 

10. Why are women entering industry ? 

11. Is this movement justifiable ? 

12. Should legislation be passed to protect working women? 

13. Would you permit your wife or daughter to take up a gainful 
occupation ? 

14. Is the frequently made statement true, — "woman's place is in 
the home?" 

15. Is unemployment necessary ? 

16. What is the English system of labor exchanges ? 

17. What is the effect of unemployment on industrial efficiency? 

18. On what grounds should society seek to prevent unemploy- 
ment ? 

19. Is there any "right to work " ? 

20. Should the government guarantee work at all ? 

21. On what ground can you justify governmental interference in 
any of these problems ? 



112 Elements of Economics 

REFERENCES 

The Bitter Cry of the Children — John Sparge. 

Labor Problems — Adams and Sumner. 

National Child Labor Committee — Proceedings of Annual Meetings 

— 1906 to date. 
The Long Day — Dorothy Richardson. 
The Woman Who Toils — Van Vorst. 
Women in Industry — Edith Abbott. 
Unemployment — W. H. Beveridge. 



CHAPTER XIV 

Education of the Worker 

I. The function of education 

1. In early times 

2. In modern times : 

a. The changed conditions 

h. How met by higher education 

c. How met by secondary education 

11. Uniformity in elementary education 

1. Extent of uniformity 

2. The consequences : 

a. " School mortality " 

b. Illiteracy 

c. Child labor 

d. Lack of preparation for life 

3. The remedy — differentiation : 
a. For boys and girls 

h. For city and country 

c. For head workers and hand workers 

d. For different trades 

4. The outlook 

The most potent force for the increase of efi&ciency and 
the promotion of welfare is education — the motive force 
of civilized society. 

The Function of Education. — The process of education 
is continuous, — it has existed in one form or in early 
another from time immemorial. In early times *™^s- 
education was confined largely to the priesthood. Later, all 
classes were educated. Egypt, Greece, Rome, historic 
I 113 



114 "" Elements of Economics 

China, — all furnish excellent examples of well-developed 
educational systems performing definite functions. 

Throughout the Middle Ages, education was based on the 
study of the classics. In the twentieth century, however, 
education has changed materially. Man's interests are no 
In modern longer confined to one group of subjects. The 
T% h <i study of Latin and Greek fails utterly to equip 
conditions, man with knowledge that will help him to solve 
the problems arising from the development of modern sci- 
ence and from the growth of industry. 

The institutions of higher learning have been the first 
in America to make an attempt to meet these changed con- 
Howmetby ditious. Realizing the tru h of Herbert Spen- 
higher educa- cer's positiou that the object of education is 
" complete living," these institutions have in- 
corporated into their curricula courses which have a direct 
bearing upon the life of the individual. Schools of engi- 
neering, of commerce and industry, of agriculture, of archi- 
tecture, and of like character, are all striking examples of 
this tendency. 

This tendency to prepare individuals for practical life so 
that they may be given the basis of complete living may be 
observed also in secondary education, but to a less degree. 
How met by "'"^ addition to the old classical high school, we 
secondary now have in most of our large cities high schools 

education. • . i ^ j. • • • ^ ^ j*i 

With manual trammg, commercial, and vocational 
courses. Too much credit cannot be given to those pioneers 
in this movement, who, seeing the evolution of modern 
life, have attempted to make the educational system con- 
form to its needs. 

Uniformity in Elementary Education. — It is in primary 
education that this modern tendency is least apparent. 



Education of the Worker 115 

The course of instruction given the child for the first eight 
years is largely traditional and generally uni- Extent of 
form. It is undoubtedly true that a change uniformity, 
here and there is being introduced, but the underlying 
principle remains the same. The primary school is but a 
ladder to the high school ; the high school leads to the 
college. There is little attempt to make the instruction 
fit the child's individual needs and his own position in hfe. 

While it is true that this uniformity results in an equahty 
of equipment for those completing the first eight years of 
school Hfe, it is nevertheless disastrous to those Theconse- 
who do not survive the rigidity of the work, ^^s^^ooi 
Since the prescribed course is distasteful, the mortality." 
beginner drops out of the race before it is fairly begun. 
Striking evidence of this fact is found in the high percent- 
age of elementary " school mortality." 

The immediate effect of this school mortality is illiteracy. 
The extent of illiteracy in the United States is not gen- 
erally reaHzed. The census of 1900 enumerates 223,208 
white children between the ages of ten and fourteen, born 
in the United States, who could neither read nor 

. . Illiteracy. 

write. The same census bulletin tells us that 
" somewhat more than one tenth (106.6 per 1000) of the 
population at least ten years of age is illiterate." The im- 
portance of this statement becomes particularly significant 
when a comparison is made between illiteracy in the United 
States and in European countries. Of every thousand in- 
habitants in Germany, Norway, and Sweden, one is illiter- 
ate ; in Switzerland, three are illiterate ; in Denmark, five ; 
in Finland, sixteen; in France, forty-nine, and in England, 
fifty-eight. 

Another consequence of the school's inability to hold 



ii6 Elements of Economics 

children because of its uniform curriculum is found in the 

existence of child labor. " The most potent reason, in my 

opinion, why children are in the factory is our 

Child labor. ii m.^ • ^ r 

school system. ihis statement, by a factory 
inspector of Louisiana, voices the opinion of many social 
workers who point to the school as a frequent cause of child 
labor. There is little doubt but that many a child prefers 
the work of the factory to that of the school. 

Finally, the effect of uniformity in elementary education 
extends to a lack of preparation for life. Children leave 
school and go to work because the school system fails to 
prepare its pupils for the life of the world. Seven eighths 
, , , of the school children of the United States never 

Lack of 

preparation enter the high school. " Yet, " says Dr: Andrew S. 
for life. Draper, Commissioner of Education in New York, 

" one who goes out of the school system before the end, or 
at the end, of the elementary course, is not only unprepared 
for any vocation which will be open to him, but too com- 
monly he is without that intellectual training which should 
make him eager for opportunity and incite him to the ut- 
most effort to do just as well as he can, whatever may open 
to him." 

What, then, should be done to make the school system more 
attractive and of greater service to the average boy and 
girl? The answer to this question is simple. The work 
Tu «-i„ should be differentiated according to the needs 

The remedy ° 

— differen- of the individual and of the community. Differ- 
ent training should be provided for girls and 
boys, for city children and country children, for head work- 
ers and hand workers, and for workers in different trades. 
Life is so varied that no one training is suited to all. 

In the first place, there is no doubt that sex should play 



Education of the Worker 117 

a part in determining the character of education. While it 
is true that during certain periods of hfe several millions of 
women are engaged in industrial pursuits, woman, never- 
theless, is primarily engaged in the home. Just as the great 
majority of boys will grow up to use their hands, por hoys and 
so the great majority of girls will grow up to be «^''^^- 
wives and mothers. It is perfectly evident, therefore, that 
elementary instruction should provide one kind of training 
for home makers and another kind for breadwinners. A 
system of education which fails to recognize this principle 
is altogether inadequate to meet the needs of modern life. 

Likewise, another differentiation is equally fundamental. 
The training of boys and girls in the city should differ essen- 
tially from the training of country boys and girls. Educa- 
tion, primary as well as secondary, should bear a direct 
relation to the adult life of the child. City con- por city and 
ditions are so totally different from country con- country. 
ditions that each set of conditions demands a training pecul- 
iar to itself. Industry is the keynote of city life and agri- 
culture the basis of country life. Therefore, the training 
of city people should be largely industrial and that of 
country folk agricultural. 

It is equally obvious that in the city different training 
should be provided for head workers and hand workers. 
In general, the elementary curriculum makes For head 
provision simply for head workers. But, per- ^J^/"'^'* 
haps, three fourths or seven eighths of all the workers. 
boys and girls who go through city schools will be called 
upon to do work with their hands. An education which 
prepares for complete living will, therefore, make provision 
for training in some form of hand work. 

The disappearance of apprenticeship from modern life 



ii8 Elements of Economics 

has necessarily widened the scope of industrial training in 

our public school system. Save in a few trades, 

trades ^"^ such as plumbing, the old apprentice form of 

training has passed away. As a result, a new 

duty has been imposed upon the school. 

If this differentiation in training along the lines just in- 
dicated is carried out, the elementary school, by losing its 
uniformity, will be brought into closer harmony with the 
conditions of modern life. It is only proper to say, how- 
ever, that in many of our larger cities attempts are being 
made to bring about this closer relation between the work 
of the school and the work of life. For example. 

The outlook. _ . _ . . , , , , , . 

the introduction oi sewmg and cooking and ot 
elementary manual training, the establishment of trade 
schools, and the organization of vocational courses are all 
hopeful indications of a recognition of this principle. Prep- 
aration for life, which is the ideal of the newer education, 
will ultimately shape the work of the elementary schools, 
as it has already molded the work of the high school and 
the university. 

TOPICS FOR CLASS DISCUSSION 

1. What should be the purpose of education? 

2. Shoiild there be definite connection between the school life and 
life in the world ? 

3. What does the school, in your community do to prepare boys for 
the work of life ? 

4. What life preparation does the school furnish for girls ? 

5. Should some form of manual training be introduced in all 
grades between the kindergarten and the high school ? 

6. Should the public school include domestic science training for 
girls ? 

7. Is universal education desirable ? 



Education of the Worker 119 

8. What advantages and disadvantages would accrue to the coun- 
try if free education were abolished ? 

9. Would it be wise to make it possible for everybody to secure a 
college education ? 

10. What has the college done to prepare men and women to meet 
the work of life ? 

11. What is the economic basis for education? 

12. What changes would you suggest as prerequisites to a more 
useful educational system. 

REFERENCES 

American Education — A. S. Draper. 
The Ideal School — P. W. Search. 
The Century of the Child — Ellen Key. 
Education — Herbert Spencer. 
Laggards in our Schools — L. P. Ayers. 



CHAPTER XV 

Capital 

I. Character of capital 

1 . Its importance : 

a. In primitive times 
h. In modern times 

2. Examples and definition of capital 

3. How wealth may be consumed : 
a. Unproductively 

h. Productively 

c. The final consequences 

4. Is money capital ? 
a. The argument 

h. The newer point of view 

5. Capital and " capital goods " 

II. Origin of capital 

1 . Capital results from saving : 
a. How men first saved 

h. How the habit spread 
c. How savings are capitalized : 
(i) By the bank 

(2) By individuals 

(3) By corporations 

(4) By other companies 

2. Capital may result from efficiency 

III. Kinds of capital 

I . Difference between : 

a. Circulating and fixed capital 
h. Specialized and free capital 



Capital 121 

2. Danger arising from : 

a. Too much fixed capital 

b. Too much specialized capital 

c. Mismanagement of capital 

Land, or natural resources, and labor, or human energy, 
are spoken of as primary essentials in production because 
both must be present in every productive operation. The 
fish in the stream and the coal on the mountain side cannot 
be converted into wealth if there are no people to catch the 
one or to pick up the other. In the same way, if there are 
no fish to catch and if there is no coal to mine, labor will be 
helpless and unable to produce wealth. 

Character of Capital. — There is, however, still another 
factor in production. While land and labor are the pri- 
mary essentials in any productive operation, there is a 
secondary essential, — capital. Capital is spoken of as 
secondary because it is the result of the applica- itsimpor- 
tion of labor to natural resources. If all the . , ' . 

1 n primt- 

capital in a community were destroyed, it could tive times. 
be replaced by the application of labor to land. In primi- 
tive times little, if any, capital really existed. What, 
capital we now have, therefore, is the result of man's 
utilization of natural resources ; it is the offspring of land 
and labor. 

Modern industry, however, requires the presence of all 
three factors. To-day, capital is as essential to production 
as land and labor. All modern productive operations are 
capitalistic. It is impossible to conceive that a present-day 
productive enterprise should be carried on without the aid 
of capital. The old primitive methods have in modem 
gone forever. The spectacle of a savage catch- ^^'"^^• 
ing fish from the brook with his hands, i.e. without capital, 



122 Elements of Economics 

has no modern counterpart. Hooks and nets, the products 
of past industry created by apphcation of labor to land, 
have now become as essential to fishing as the fish and the 
man himself. Therefore, to catch fish, i.e. to produce 
wealth by creating utilities in the fish, capital is required. 

This is one of a thousand ways in which the products of 
past industry aid man in producing wealth. Capital is an 
Examples integral element in industry. Under capital are 
tion of "*' included: (i) improvements on land; (2) roads, 
capital. railroads, telegraph and telephone lines ; (3) tools, 

machines, and mechanical appliances ; (4) raw materials, 
and partially manufactured materials to be used in' later 
manufacturing. All these constitute wealth and all help 
man to produce additional wealth. Capital, therefore, may 
be said to be that part of wealth used to produce more 
wealth. 

All wealth, then, is not capital. The test of whether or 
not wealth is capital is the way in which it is used. If a 
Wealth nation or an individual has wealth and consumes 

Vnb oduc '^^ uuproductively, then this wealth is not capital. 
lively. The man who dissipates a fortune prevents the 

employment of so much wealth as capital. The Pyramids 
of Egypt, although representing a vast outlay of materials 
and labor, are not capital. Wealth used unproductively, 
whether by a man or by a society, is not capital. 

Wealth may, however, be consumed productively. The 
wealth represented by railroads, machinery, and buildings 
Produc- is capital because it is being used to produce 
lively. wealth. Capital, therefore, depends upon the 

productive use of wealth. A man with a fortune, instead 
of squandering it, may invest it in a business and thus 
convert it into capital. 



Capital 123 

Every individual possessed of wealth has, therefore, two 
choices open to him. He may use it productively or unpro- 
ductively. If through extravagant entertaining and sump- 
tuous luxury the man uses his wealth unproductively, he 
has nothing to show for it except gout and indi- The final 
gestion. On the other hand, if by enlarging consequences. 
his plant and installing new machinery he uses his wealth 
productively, he not only keeps his original wealth but adds 
to it through production. 

One of the first questions that arise in a discussion of 
capital is the query, " Is money capital? " Money is a 
product of past industry and is used to assist in is money 
production. In order to prepare it for circulation, capital? 
the mint, equipped with expensive capital, has expended labor 
in turning the bullion into its present form. Furthermore, 
money is an absolute necessity in productive operations. 
The grocer needs money to make change; the The 
manufacturer needs it to pay his employees on "■nument. 
Saturday night; the consumer needs it to purchase bread 
from the baker and milk from the dairy. In other words, 
money performs a very essential part in aiding modern' 
production. If money, then, is the product of past industry 
and performs a part in production, it must be capital. 

But these arguments do not apply to all money. If a 
man were to receive one hundred dollars and put them in a 
stocking behind the chimney, this money would not be 
capital because it would not be assisting in production. 
It is, therefore, fair to conclude that, as with other commodi- 
ties, money may be capital or it may not be capital. The 
question as to its status at any given time may be deter- 
mined only by knowing whether or not the money under 
consideration is being used to assist in production. 



124 Elements of Economics 

This statement represents the older view of capital, 
according to which things assisting in production, whether 
directly or indirectly, were included in capital. According 
to the newer view, in order to be capital a good must aid 
The newer directly in production. The ax used by a wood- 
pointof man to cut down a tree is capital because it is 
the product of past industry and is being used 
directly to assist in future production. On the other hand, 
the breakfast eaten by the woodman assists production 
only indirectly and therefore is not capital. Economists 
are accepting the latter view more and more, so that money 
in order to be capital must assist directly in productive 
operations, — that is, it must be used by the grocer to 
make change or by the employer to pay wages; 
. As ordinarily used, the term " capital " refers to a more or 
less unchangeable thing. A business may be capitalized 
at fifty thousand dollars for twenty years. During this 
time, however, every tool and machine used in the work 
may have been replaced by new ones. The " capital " 
has remained the same, but the " capital goods " — the 
Canitai and "^3,rious elements making up the capital — have 
"capital been worn out and replaced. In this fact lies 
^°° ^' an important distinction. Capital is the intan- 

gible, continuous thing which represents the total value of 
the wealth-producing products of past industry employed 
in the production of new wealth. Capital goods, on the 
other hand, represent the individual machines, engines, and 
other tools of production which wear out in the course of 
time and are replaced. Capital is a constant factor. 
Capital goods are constantly changing. 

Origin of Capital. — Even within comparatively recent 
times society possessed only a little wealth, nearly all of 



Capital 125 

which was needed for present consumption. In such times, 
therefore, capital could be accumulated only by capital 

saving; that is, instead of consuming all that results from 
° . ' . ° . saving : 

he received, a man abstained from consumption How men 
and consumed but a small amount of what he first saved. 
would otherwise have used up. When he had saved suffi- 
cient wealth through this abstinence, he used it to secure 
some new tool, such as a windmill or a sailboat, that would 
increase his power to produce wealth. 

As a result of this early necessity for saving, the idea was 
spread through the whole race, by means of the schools, 
the churches, and other means of instruction, uowthe 
that it was necessary to save. The consequence habtt spread. 
of this education was the development of a strong desire to 
save. To-day this attitude is perhaps best illustrated by 
the immigrant who, coming to the United States, lives on a 
low standard in order that he may have a competence for 
his old age. 

Saving has thus become one of the virtues, yet few who 
save really understand the connection between saving and 
capital. A child receives a five-dollar gold piece from its 
grandmother and takes it home in great glee. „ 

'-' 00 How sav- 

Acting on the advice of its parents, the child puts ings are 
the gold piece in the savings bank with the im- '^'^^^^'^ ^^^ " 
plicit belief that the same five-dollar gold piece will be re- 
turned by the bank whenever the demand is made upon it. 
But the bank is not doing business in this way. 

The bank acts as a loan agent. For example, a pro- 
spective shoe manufacturer wishes to start business, and the 
bank, upon being furnished proper security, lends him 
fifty thousand dollars. The child's five-dollar gold piece, 
together with h\indreds of similar deposits, goes to make up 



126 Elements of Economics 

this loan. With the money or credit thus secured the 
manufacturer begins work. He builds his factory, employs 
labor, and enters the shoe market, using his wealth to 
produpe more wealth. At the end of a year he has done 
such a successful business that he has made fifteen per cent 
on his original investment. Out of this fifteen per cent he 
pays the bank six per cent for the use of its money or 
credit, and out of this six per cent the bank pays the child 
three per cent or fifteen cents for the use of his five dollars. 
In this way, every one engaged in this capitalistic transac- 
tion has been the gainer. 

Formerly this was the most general method of capitaliz- 
ing savings. The bank acted as a loan agent for any one 
who wished to secure money and who could furnish reliable 
securities as collateral. Its loanable funds were secured 
from a large number of people in the community, each of 
whom wished to invest a small amount of money, but no 
one of whom was sufficiently well off to be able to lend a 
large sum such as a manufacturer would require. 

There were, to be sure, cases of individuals who had saved 
considerable sums; and when Farmer Wilhams wished to 
build a barn, he went to Farmer Jones and borrowed five 
hundred dollars on a mortgage. But this was an uncertain 
way of carrying on an enterprise. Every community did 
not have a Farmer Jones. Besides, as industry grew, neither 
five hundred dollars nor five thousand dollars was enough to 
start a business. Even though he had them, no person 
wished to lend the large sums necessary to begin a modern 
business enterprise. 

To meet this contingency a new plan has recently been 
developed and perfected. As a result of this new method 
the bank is often eliminated from the transaction. The 



Capital 127 

shoe manufacturer decides to begin business, but, instead of 
going to the bank with his collateral and borrowing fifty 
thousand dollars, he incorporates his business ; that is, he 
secures a charter, a board of directors is appointed, and 
stocks and bonds are issued. These stocks and bonds are 
then sold to the people in the community who wish to invest 
their money and who do not wish to engage in business 
themselves. Thus, without the intervention of the bank 
and with the bank's profit eliminated, the business man 
secures his capital directly from the person who has saved 
it and who desires to invest it. At the same time, no one 
is called on to invest a large amount. A company may be 
capitalized for ten million dollars, but an individual, by 
buying merely one share, needs to invest only fifty or one 
hundred dollars in the enterprise. 

Trust companies, insurance companies, and, in a limited 
sense, building loan associations likewise exercise the func- 
tions of the bank and act as loan agents for investors and 
borrowers ; but in recent years the corporation, by selling 
stocks and bonds and paying good rates of interest, has 
often done away with the intermediary banking establish- 
ments and gone directly to the individual saver. 

When wealth is scarce and living precarious, man must 
scrape and save in order to put something aside for the 
future. But the problem of capital may be looked at from 
another standpoint. To-day, when wealth is plentiful, 
man's ability to accumulate capital may depend capjtai^gy 
not so much on saving as on efiiciency. For result from 
example, a man earning ten dollars a week and ® ^lency. 
desiring to become a capitalist has two courses open to him. 
He may lower his standard of living and, by consuming less 
than he requires, save two dollars of his weekly wages. Or, 



128 Elements of Economics 

by hard work and additional training, he may increase his 
efficiency so that he now has an earning capacity of twelve 
dollars a week. This extra two dollars will then form a 
fund for investment. 

Kinds of Capital. — We have yet to examine the different 
kinds of capital and the problems arising from them. Capi- 
^. , ,. tal is described as "circulating" or "fixed" and 

Ltrculahng ° _ 

and fixed as " speciaHzcd " or " free." Circulating capi- 
capitai. ^^2 .g (.g^pji-g^j which is destroyed by a single use ; 

such as coal, and other raw materials. In contrast to this, 
fixed capital is capital which can be used for a considerable 
length of time without being destroyed. Examples of fixed 
capital are locomotives, factories, and dump carts. 

Again, capital which is molded into a form which can be 
used only for a particular purpose is called specialized capi- 
tal. The degree of specialization may be great or moder- 
ate. For example, a press which will stamp out twenty- 
s penalized dollar gold picccs is an extreme form of specializa- 
capitai. ^[q^ because there are but a few places in the 

world where twenty-dollar gold pieces are stamped. A 
crane built to carry fifty tons is. a less speciaHzed form 
of capital. The crane may be of service in any one of 
several industries, while the coin press can be used in 
but one. 

In contrast to this, capital is said to be free when it exists 
in a form that may be used in a large number of industries. 
For example, pig iron is free capital. It can be converted into 
carriage springs, bicycle pedals, drills, car wheels, 
and hundreds of other things. The ordinary 
machinist's lathe is somewhat specialized, but it would be 
considered almost free in contrast with a lathe made to turn 
a ten-thousand-pound shaft. When capital is usable in 



Capital 129 

only a few ways, it is specialized ; when, on the other hand, 
it is usable in many ways, it is free. 

One of the great problems in the development of capital is 
to determine how much capital should be utilized in the 
form of fixed and how much in the form of circulating capi- 
tal. Wealth in the form of fixed capital cannot of course 
be converted immediately into circulating capital, and the 
progress of the community may thus be seriously hampered 
by the lack of a sufficient amount of circulating capital. In 
the early part of the nineteenth century an enor- Danger : 
mous amount of wealth was converted into canals, ^^"^ 1"" , 

' much fixed 

— a form of fixed specialized capital. Many capital. 
more canals were built than the traffic warranted, and the 
wealth sunk in many of the canal projects was completely 
lost. Similarly, one of the causes of the panic of 1873 was 
the conversion of a large amount of the wealth of the com- 
munity into fixed capital in the form of railroads. As it 
turned out, too great a proportion of the country's wealth 
was put into this form of capital and a business tie-up 
resulted. 

In the same way, if too large a proportion of capital is 
turned into specialized goods, it is clear that industry will 
suffer because of a lack of capital which can be diverted into 
the kinds of production that will meet the changing demands 
of modern society. The mobihty of capital in the United 
States, that is, its ability to change from one From too 
use to another, is shown by the growth of the ^^Uzed^' 
automobile industry. In 1900 this industry capital. 
was insignificant. In 1908, it was employing a capital of 
$250,000,000 and a labor force of eighty thousand employ- 
ees. So long as capital is sufficiently mobile to flow readily 
from one industry to another, or so long as there is sufficient 



130 Elements of Economics 

wealth to form capital for new industries, the industrial 
conditions in the community are sound. 

Since modern production is so intimately connected with 
the maintenance of capital, the question of its management 
is of vital importance. Capital is brought together in a 
From mis- corporate form by a great aggregation of small 
management investments. If, therefore, this capital is man- 
oj capita . aged, not in the interest of stockholders, but in 
the interest of officers of corporations, the whole community 
will be in danger, because the loss due to mismanagement 
will fall on the rank and file of industry as well as upon the 
stockholders. The welfare of the United States is inti- 
mately dependent Upon wisdom and integrity in the man- 
agement of .capital. 



TOPICS FOR CLASS DISCUSSION 

1. Is the lead pencil with which you take notes capital? 

2. Is a child's slate capital ? 

3. Why do we put our money into railroads rather than into 
pyramids? 

4. Is money capital ? 

5. Distinguish accurately between natural resources and capital. 

6. Distinguish between wealth and capital. 

7. Make a list of things which are capital. 

8. Are the following capital : pig iron, a plow, candy on the shelves 
of a retail dealer, a package of tobacco belonging to a laborer, coal ? 

9. Does capital really produce ? How ? 

10. Name some employment, if you can, in which labor produces 
without capital. 

1 1 . Are securities capital ? 

12. Why do Americans look contemptuously upon immigrants 
who maintain a low standard of living in order to save ? 

13. What prompts the average man to save ? 



Capital 131 

14. Is it better for a man to maintain a high standard of living or 
to save by lowering his standard ? 

15. Is the spender or the saver more advantageous to the com- 
munity ? 

16. Is it wise to increase the amount of capital in the United States ? 

17. Is the effective desire of accumulation stronger in the United 
States or in Central America ? Why ? 

18. Distinguish between saving and hoarding. 

19. Is the miser or the spendthrift the more useful member of 
society ? 

20. Speaking of the Galveston flood, a writer said: "Fortunately, 
such events are not unmixed evils. Employment will now be found 
for many laborers, and this benefit should not be forgotten or mini- 
mized by us." What do you think of the statement ? 

21. Is a football celebration which results in the breaking of $200 
worth of windows advantageous to laborers in general ? 

REFERENCES 

Principles of Economics — E. R. A. Seligman. 
Introduction to Economics — H. R. Seager. 
Elements of Economics — C. J. Bulloch. 
Positive Theory of Capital — E. von Bohm-Bawerk. 
Principles of Political Economy — J. S. Mill. 
Capital — K. Marx. 



CHAPTER XVI 

The Social Surplus 

I. Character and causes of the social surplus 

1. Its meaning 

2. Its causes : 

a. Cooperation : 

(i) How methods have changed 

(2) How men cooperate 
h. Growth of population 
c. Advance of civilization 

II. Effects of the social surplus 

1. On goods and prices 

2. On education 

3. On leisure 

4. On recreation 

5. On city life 

6. On saving : 

a. How the viewpoint has changed 

h. How capital is now created 

c. Final effect of the social surplus 

Character and Causes of the Social Surplus. — Intimately 

connected with the subject of capital is the problem of the 

social surplus. In fact, the social surplus is one form of 

capital. Just as man by individual effort may produce a 

surplus of goods over and above what he requires 

Its meaning. . , ., ,.p . , , 

for daily hfe, so society through cooperation may 
produce a vast surplus of goods beyond what is needed for 
present consumption. This surplus of products, the result 

132 



The Social Surplus 133 

of social rather than individual action, is called the social 

surplus. 

The individual surplus and the social surplus resemble 

one another in that both are intended for future 

^.rr 1 • ^ • • • Its causes : 

use ; they dmer, however, m their origin. 

In the first place the social surplus is the result of coopera- 
tion. Men working together can produce vastly more than 
men working singly. An example of this may be seen in the 
production of any ordinary commodity, such as nails. For- 
merly, each nail was hammered out on an anvil ^ 

•^ ' _ , Cooperahon. 

by the strong arm of an artisan ; now, a long wire 
runs into one end of a machine and comes out of the other 
in the form of a finished nail. This change in method has 
had a marvelous effect on the output. Fifty years ago one 
man might hammer out a hundred nails an hour ; to-day, by 
changing the method of production, a swift-moving machine 
produces thousands of nails in the same time. 

This change in method is based on cooperation. Men 
have worked together in groups and then these groups them- 
selves have worked together. One set of men made iron 
ore into steel ; another set made iron and steel into the nail- 
making machine ; another made the belts, the screws, and 
the gears ; still another transported these products to one 
central place, the factory ; and now, all being ready and a 
million hands having assisted in bringing the steel wire and 
the machine together, the machine produces a flood of nails 
which find their way into the home, the office, and the fac- 
tory. All this has been accomplished simply because of the 
principle of cooperation, which asserts that two men work- 
ing together can produce more than twice as much as each 
man working separately. 
- In the second place, the social surplus results from an in- 



134 Elements of Economics 

crease in value brought about by social action in the form of 
the growth of population. This is clearly seen in the case 
of land values. The value of land rises with the growth of 
population and the consequent demand for land and its 
products. The lot in the heart of a populous city, or the 
Growth of fertile farm feeding a growing population, is 
population, niany times more valuable to-day than fifty years 
ago. This increase in value has been brought about, not 
by any one individual, but by collective action of the whole 
social group. Therefore, increased land values, not due to 
individual improvements but resulting from social activity, 
are social values and constitute a part of the social surplus. 
While, under our present system, they may enrich individual 
landowners, they are, nevertheless, created by society. 

In the third place, the social surplus is due to advancing 
civilization. No invention is the work of one man, but the 
final triumph of a long line of preceding inventions. Pro- 
cesses, systems of work, railroads, streets, — in fact the 
whole fabric of society, — are begun by one generation and 
Advance oj handed on to the next. Thus each succeeding 
civilization, generation enjoys the benefit of all that has gone 
before. Adding its own contribution to this heritage, it then 
passes the fabric on to its successor. In this manner the 
present generation, securing vast returns from a system to 
which it contributed nothing, is enjoying a social surplus. 

Effects of the Social Surplus. — The most direct effect 
of the social surplus should be seen in the quality, quantity, 
and prices of goods. If the surplus is properly distributed 
On goods throughout society, a better grade of goods will 
and prices. -^^ produced in larger quantities at cheaper 
prices. For example, an improved process of making shoes 
will increase the output and lower the prices of shoes to the 



The Social Surplus 135 

advantage of all who wear them. This process of better- 
ing quality, increasing amount, and decreasing price should 
continue until every member of the community has an op- 
portunity to secure enough economic goods to maintain an 
" efficiency " standard of living. 

The social surplus also makes itself felt in other less direct 
ways. For example, when there is a great mass of social 
wealth in a community, society may offer opportunities 
for individual improvement. In our large cities on educa- 
this is frequently seen in the great number of *^'°°" 
publicly or privately endowed lecture halls, libraries, mu- 
seums, schools, and colleges, which open to the average man 
and woman lines of work hitherto unattainable. 

Likewise, the social surplus makes possible wide oppor- 
tunities for leisure and recreation. In modern life leisure 
is essential. Leisure does not mean idleness, but time in 
which men are free to do as they desire. The nail machine 
has its advantage in increased output ; its dis- ^ . . 

^ . On leisure. 

advantage, m monotony and sameness. Since 
his work is largely mechanical, the man who tends this 
machine learns very little. Therefore, if such a man is to 
live a full rounded life, he must have leisure, — free time 
in which to walk and read and think. 

Through the shorter working day, the social surplus makes 
leisure possible. Surplus wealth results in surplus time. 
Part' of this time should be devoted to recreation, — to 
activities of a relaxing nature which require neither concen- 
trated thought nor monotonous movement. In the coun- 
try, recreation is easily had ; but in the city, on recrea- 
opportunities for recreation, unless created in ^ion. 
the form of parks and playgrounds, are extremely limited. 
Therefore, the social surplus should provide the community 



136 Elements of Economics 

with opportunities which will prove adequate substitutes 
for the lost recreation* facilities of country and village life. 
Thus it is evident that the social surplus should have a 
decided effect upon the conditions of city life. This wealth 
of society should be diverted into various channels. Not 
only should recreation facilities be provided, but 

On city life. "^ . 

the city should be made beautiful. In this 
respect, America has much to learn from Europe. Public 
architecture should be of the finest character. Streets 
should be widened, trees planted, and every effort made to 
beautify the city. 

Finally, the social surplus will have a marked effect upon 
On saving : the habit of saving. It may readily be seen that 
How view- ^^ existence of large surplus wealth, decreases 

point has or' 

changed. the necessity of individual saving. In fact, so 
great is this surplus to-day that this increased wealth has 
caused the emphasis in modern life to be shifted from saving 
to efficiency. 

In earlier days, when wealth was scarce, the hard-fisted 

man was in great demand because it was only through stint- 

,., , ing and close living that capital was amassed. 

How capital ° . ■ . 

is now But now wealth is so plentiful that it is no 

create . longer nccessary that man should abstain from 

consuming. In fact, the more man consumes wisely, the 
greater will be his productive power. Under modern 
conditions, capital is created, not by learning how to save, 
but by learning how to produce efficiently. High efficiency 
means great social surplus ; the worker, not the saver, 
produces this surplus. 

Yet the habit of saving has become almost a racial charac- 
teristic. Through insurance and trust companies, through 
building and loan associations, and through investments in 



The Social Surplus 137 

stocks and bonds, people are saving as never before. This is 
regarded as necessary in order to provide for a pinai effect 
" rainy day." This provision for the future may of the social 
be made as a result of abstinence or in consequence 
of increased efficiency. If it results from the former, the 
individual is depriving himself of many goods needed to 
maintain his productive power ; if it results from the latter, 
he is not depriving himself of the necessaries of life, but is 
accumulating capital by means of his increased productive 
capacity. The social surplus, by removing the necessity of 
saving, will cause men to realize more and more that effi- 
ciency, not parsimony, is the key to individual as well as 
social welfare. 

TOPICS FOR CLASS DISCUSSION 

1. What is "social surplus" ? 

2. What are " socially created values"? 

3. What relation exists between cooperation and the social 
surplus ? 

4. What factors lead men to cooperate ? 

5. What may the social surplus mean to the individual ? To 
society ? 

6. What is the relation between population growth and the social 
surplus ? 

7. How may the social surplus affect prices ? Production ? 

8. What relation does the social surplus bear to education? 
Leisure ? Recreation ? 

9. What was the old concept of saving? 

10. How is this concept altered by the presence of a large social 
surplus ? 

REFERENCES 

Evolution of Modern Capitalism — J. A. Hobson. 
New Basis of Civilization — S. N. Patten. 
The Theory of Dynamic Economics — S. N. Patten. 
Product and Climax — S. N. Patten. 



CHAPTER XVII 
American Agriculture 

I. Its early development 

1. In the North 

2. In the South : 

a. The agricultural conditions 
h. The effect of the cotton gin 

3. In the West: 

a. Effect of steam engine 

h. Effect of public land policy 

4. Importance of machinery : 

a. Early agricultural methods 
h. Modern improvements 

5. The final result 

II. Its present status 

1. Importance of agriculture 

2. Kinds of agriculture: 
a. General farming 

h. Production of cereals 

c. Stock raising 

d. Dairying 

e. Fruit growing 

/. Market gardening 

3. Agricultural training 

If a nation is rich in land and capital and has an efficient 
labor force, national prosperity and individual welfare are 
attainable. So far as these primary requisites are concerned, 
the United States is unusually fortunate. What use has the 
United States made of these opportunities ? What progress 
has been made in agriculture, in manufacturing, and in 
transportation ? 

138 



American Agriculture 139 

Early Development of Agriculture. — In a previous 
chapter the fundamental physical differences between the 
North and the South were indicated. The North- in the 
ern environment, with its thin soil, mineral de- North, 
posits, and cold climate, made an industrial society inevitable. 
The Northern colonists turned naturally to lumbering, fish- 
ing, commerce, and later to mining and manufacturing. To 
be sure, agriculture was also developed, furnishing the colo- 
nists with grain, Hve stock, fruit, and general farm products. 

The South, however, was the natural home of agriculture. 
Its genial chmate and fertile soil led the early colonists to 
disregard their industrial possibilities and turn their atten- 
tion to the cultivation of tobacco, rice, indigo, and in the 
cotton. The institution of slavery also fostered South: 
this agricultural development, and, in turn, was cuitmai' 
made profitable by it. While slave labor, be- conditions. 
cause of its lack of intelligence, was not particularly suited 
to the growing of tobacco, it was nevertheless well adapted 
to the cultivation of rice, because in the rice swamps slave 
labor could be readily worked in gangs. 

In the cultivation of cotton, however, slavery received its 
real impetus. In 1793 Whitney's cotton gin made possible 
a mechanical separation of the cotton seed from the fiber. 
This device brought about the growth and manufacture 
of cotton on a large scale. Cotton cloth ceased ^^^^^ . 
to be expensive because the gin cleaned as much the cotton- 
cotton in a day as had been cleaned formerly by ^^^' 
hundreds of slaves. In this manner, cotton became the 
most profitable crop of the Southern planter because it 
could be grown by slaves managed on the g^ng system. 
The planters increased the size of their plantations, added 
to the number of their slaves, and extended the cultivation 



I40 Elements of Economics 

of the cotton crop from Cape Hatteras to Texas. The 
South had crowned her king. 

Meanwhile, a parallel agricultural movement was pro- 
gressing in the West. From the opening of the Northwest 
Territory to the settlement of Washington and Oregon, the 
land west of the Alleghany Mountains was transformed from 
a wilderness into an agricultural region. In the early part 
In the of the nineteenth century, because of the impossi- 

West: bility of transporting grain other than by boat, 

steam Settlements could be made only along the rivers. 

engine. 'Qwt, with the advent of the steam engine, land 

transportation of bulky freight became possible and the 
West was peopled and developed with lightning rapidity. 

Another important factor in the development of the West 
was the ease with which public lands were secured. The 
federal government, abandoning the attempt to amass 
revenue from the sale of these lands, made every effort to 
induce their settlement and cultivation. As a result of 
Effect of ^^^^ policy, the pioneers pushed from the North- 
puhiic west Territory into " Louisiana," " Oregon," 

land policy, u California " and " Texas." They cleared the 
wilderness, sold their claims, and then moved on to the next 
bit of wild land. In this way, the great acquisitions of terri- 
tory were brought, one by one, under human control and 
made an integral part of the agricultural wealth of the nation. 

No factor has been of greater importance in the general 
Importance development of American agriculture than the 
of ma- use of machinery. At the beginning of the 

c mery. nineteenth century, the farming of the nation 
agricultural was douc with tools little better than those 
'"^^ " ^' used by the Romans in the days of Julius Caesar. 
Horses were scarce ; oxen, expensive. The land was broken 



American Agriculture 141 

up, and crops sown, cultivated, and harvested chiefly by 
hand power. But this kind of labor was slow and costly, 
and Yankee ingenuity was called upon to devise labor-sav- 
ing appliances. As a result, machinery, for the first time 
in human history, came to play a leading role in the develop- 
ment of agriculture. 

The first successful agricultural machinery in America 
was built during the second quarter of the nineteenth cen- 
tury. Since that time it has been improved and perfected. 
The land is now plowed by a horse plow or steam plow; 
the grain is sown by a drill which not only spreads ^^^^^.^ 
the fertilizer but covers the seed; the crop is improve- 
cultivated and the harvest reaped by machines '"^" ^' 
especially designed for the work. The country boy need 
no longer leave the back-breaking farm toil for the stifling 
air of the factory. The factory, in the form of modern 
machinery, has come to the farm and makes bearable the 
life of the agricultural laborer. 

Based on science and bulwarked by mechanical appli- 
ances, American agriculture has developed rapidly during 
the nineteenth century. The South raises cot- The final - 
ton, tobacco, rice, sugar, fruit, and vegetables ; '^^s"^*- 
the West, grain, fruit, and cattle ; while the East is devoted 
to general farming and dairying products. In two hundred 
years American agriculture has grown from infancy to 
splendid maturity. 

Present Status of Agriculture. — In the year 1909 the 
report of the Secretary of Agriculture showed that the total 
farm crops of the country were valued at $8,760,000,000. 
No other products compare with these in value ; its im- 
while, likewise, there is no other single group of po^tance. 
industries including such a large proportion of workers. 



142 



Elements of Economics 



The dependence of labor on agriculture is seen by the fact 
that one third of all the labor employed in gainful occupa- 
tions in the United States is engaged in some form of agri- 
cultural pursuit. 

For convenience of discussion this occupation may be di- 
Kinds of vided into the following lines of work : (i) general 
agriculture: farming; (2) production of cereals; (3) stock 
raising ; (4) dairying ; (5) fruit growing ; (6) market gar- 
dening. Each of these will be briefly examined. 

General farming is an occupation usually associated with 
the word " farmer." The general farmer raises live stock, 
has a small dairy, keeps chickens and pigs, raises some 
General fruit, and, if near a market, grows a small amount 

farming. ^f garden produce. As "jack of all trades and 
master of none," he fails to secure a large or valuable prod- 
uct. For this reason the general farm is being rapidly aban- 
doned in favor of some more specialized agricultural work. 

Of these specialized agricultural pursuits, the production 
of cereals is by far the most important. The enormous 
value of our cereal crops may be seen by the fact that, in 
Production iQOQ, the total value of the 4,700,000,000 bushels 
of cereals. ^f ccrcals produccd was almost three billion dol- 
lars, which were distributed among the various crops as 
follows : — 



Value 



Bushels 



Corn 
Wheat 
Oats 
Barley 
Rye . 



1,720,000,000 

725,000,000 

400,000,000 

88,000,000 

23,000,000 



2,767,000,000 

725,000,000 

984,000,000 

165,000,000 

31,000,000 



American Agriculture 143 

Stock raising is an industry largely confined to the middle 
Southwest. Cattle are raised on the ranches of Arizona, 
transported to Kansas, and there fattened on the corn lands. 
Then they are taken to St. Louis, Omaha, or siock 
Chicago, where they are slaughtered, converted '■'^"*'^^- 
into various packing house products, and shipped finally to 
all parts of the world. On the Kansas farms, hogs also are 
fed with the cattle, fattened on the corn, and then shipped 
to the packing houses. 

Dairying, which sometimes accompanies stock raising, 
is usually confined to the neighborhood of great cities. 
The necessity of producing dairying products . . 
within easy reach of the city is particularly seen 
in the case of milk, since milk cannot be transported prop- 
erly for a greater distance than one hundred miles. Butter, 
however, is transported from the Middle West to all parts 
of the country. 

Western fruit growing was originally developed to furnish 
return freight for the emptied refrigerator cars. The great 
packing houses in the Middle West, shipping their products 
in cars to the Pacific Coast, were unable at first PruU 
to secure for them any suitable return cargo, sr owing. 
However, this coast was peculiarly suited to the growing of 
showy fruit. Thus an industry was soon developed which 
provided the empty meat cars with a splendidly paying 
return shipment. Then, too, apples and Tokay grapes 
proved to be good paying crops and were rapidly introduced 
from Oregon and Southern California. Fruit has, of course, 
always been grown on a small scale in all agricultural dis- 
tricts. 

Market gardening has developed at a phenomenal rate 
during the past quarter century. Originally, farmers grew 



144 Elements of Economics 

their products and hauled them in wagons to the near-by 
towns. Now, spinach, lettuce, tomatoes, and other green 
vegetables are grown in the Southern states all winter long 
and shipped by fast freight to the North. These products 
Market not Only bring reasonable prices to Southern 

gardemng. farmers, but they provide city consumers with 
green vegetables throughout the whole year. Meanwhile, 
hot-houses have been constructed in the North in which 
lettuce, tomatoes, cucumbers, beans, and other green prod- 
ucts are grown with considerable profit. The rapid increase 
of city population has thus been followed by the develop- 
ment, all along the Atlantic seaboard, of market gardening 
on a large scale. 

During the nineteenth century the American people have 
developed and perfected so many new agricultural methods 
that agriculture itself has been placed on the basis of mod- 
ern industry. In bringing about this result, the agricul- 
tural school has played an important part. Formerly, the 
Agricultural farmer was an untrained man. The knowledge 
training. ]^g possessed was inadequate and traditional. 
To-day, however, on the farms of the middle and far West 
there are from fifteen to twenty thousand college graduates. 
These men are trained in the modern science which has 
revolutionized agriculture as well as industry, and are 
equipped with a knowledge of business methods. Upon 
men of this character depends our future agricultural prog- 
ress. 

TOPICS FOR CLASS DISCUSSION 

1. What causes make it possible for the percentage of our popula- 
tion engaged in agriculture to decrease steadily ? 

2. Why have many people left the farms for other pursuits? Is 
this migration likely to continue ? 



American Agriculture 145 

3. Agricultural experts tell us that by using present amounts of 
labor, land, and capital according to the most effective plans of 
agricultural organization already known, the productive efficiency 
in this industry could be doubled in a year. Why is this not done ? 
What forces are making in that direction ? 

4. Why should the forces of custom, habit, and inertia be stronger 
in agriculture than in other pursuits ? 

5. What functions do you think the agricultural colleges perform ? 

6. When good means of transportation opened up markets for 
the produce of the Western pioneers, what changes took place in 
agricultural organization ? 

7. Under what conditions are we apt to have diversified farming? 
Single crop farming ? 

8. Why is agriculture in Europe more intensive than in the United 
States ? 

9. If you were compelled to take up agriculture as a profession, 
what branch would you select ? Why ? 

10. Why is the general farmer turning more of his attention to 
specialties ? 

REFERENCES 

Industrial History of the United States — K. Coman. 
Economic History of the United States — E. L. Bogart. 
Elements of Agriculture — G. F. Warren. 
The New Earth — W. S. Harwood. 
Bulletins of the Department of Agriculture. 
State Agricultural Department Bulletins. 



CHAPTER XVIII 

Soil Fertility 

I. How the soil is exhausted 

1. Importance of fertility 

2. Causes of soil exhaustion . 

a. The " one crop " system . 

(i) Examples in the South 

(2) Evil results 
h. Removal of " humus " : 

(i) What humus is 

(2) Why it is essential 
c. Waste of manure : 

(i) Examples of this waste 

(2) The estimated loss 

II. How fertility may be restored 

1. What fertility depends upon 

2. Means of soil conservation : 
a. The fertilizers : 

(i) Chemical fertilizers 

(2) Animal products 

(3) Barnyard manure 
h. Cover crops : 

(i) Their meaning 

(2) When and how grown 

(3) Their purpose 

(4) Value of " legumes " 

3. The outlook 

How the Soil is Exhausted. — Inseparably connected with 
the subject of agriculture is the question of soil fertihty. It 
is self-evident that without fertility soil will not produce. 
But in spite of this obvious proposition, Httle attention 

146 



Soil Fertility 147 

has been given, until recently, to the conservation of soil 
fertility in the United States. In this country rich soil has 
been so abundant that man, rather than spend importance 
time and effort upon the conservation of a par- °^ fertility, 
ticular soil, has simply moved from land of diminishing 
fertility to virgin land. 

The problem of soil fertility deserves careful considera- 
tion. Through carelessness or ignorance, the American 
farmer has unnecessarily exhausted the fertility q^^^^^ ^f 
of the soil. This exhaustion has resulted chiefly soil ex- 
from the " one crop " system, from the removal of 
" humus," and from the waste of manure. 

The one crop system used for years in the South is dis- 
astrous to soil fertility. There, the same piece of land, 
year after year, was used for growing tobacco or cotton, 
and when the planter began to notice a decreased return, 
he moved to another fertile spot which he likewise devoted 
to the exclusive production of one crop. This j^^ u ^^^ 
one crop system has two evil results. In the crop" 
first place, it causes the soil to be exhausted of ^'^^ ^'^' 
that particular element required to grow the special crop, 
so that eventually the cultivation of the crop on that land 
will have to be abandoned. In the second place, the par- 
ticular insect enemies and bacteria which prey upon that 
crop will multiply to an alarming extent and ultimately 
prove disastrous to its cultivation. 

Again, soil exhaustion has resulted from the removal of 
" humus." Humus is decayed vegetable matter. It is 
essential to fertility because it loosens the soil, Removal of 
permits the entrance of air and sunlight, holds " ^«'»«^" 
moisture, and finally furnishes food elements for plant 
growth. The exhaustion of humus makes soil infertile. 



148 Elements of Economics 

Another reason for soil exhaustion is found in the waste 
or disuse of manure. Sometimes when manure piles be- 
come so large as to be in the way a farmer simply removes his 
barn, the thought of using the manure as fertilizer never 
entering his head. In the " abandoned farms " of New 
England, however, we find a less extreme but, unfortunately, 
more general instance of the failure to utilize manure 
Waste of properly. For generations, the New England 
manure. farmer planted his crops, — hay and grain, — 
cut them, fed part of them to his cattle and horses, and 
shipped the remainder to town. The part which he fed to 
his stock was returned to the land in the form of stable ma- 
nure. But this manure, while piled up in the barnyard for 
several months of the year, was depleted of its liquid portion 
and of that portion which leached out. Thus the farmer 
each year returned to the soil less than he had taken from it. 

Some idea of the loss entailed by this waste may be 
gained from an estimate made by the United States Depart- 
ment of Agriculture. This department estimated that 
$250,000,000 represented the annual loss resulting from the 
failure to utilize manure efficiently. This loss might be 
prevented simply by conducting the liquid to cement pits 
on cement floors, instead of permitting it to run off into the 
barnyard. 

In these various ways, therefore, American farmers for 
many years past have been exhausting the fertility of the 
soil, — rapidly in the Southern plantations, slowly in the 
New England farms. To-day, as evidence of this, great 
stretches of land in both districts lie unused. 

How Fertility may be Restored. — In addition to scien- 
tific cultivation and proper maintenance of humus, soil 
fertiUty depends chiefly upon the presence of three elements. 



Soil Fertility i49 

— nitrogen, phosphorus, and potassium. Of these three 
elements, potassium, which is found generally in ^j^^^ fgj._ 
clay soils, is most easily obtained. Nitrogen is tmty de- 

1 1 • n 1 1 • 1 pends on. 

secured chiefly through ammonium compounds, 
while phosphorus exists in bone meal, dried blood, guano, 
and phosphate rock. The maintenance of soil conservation 
depends largely upon the presence of these elements. 

To maintain these essentials in the soil either chemical 
fertilizers, animal substances, or barnyard ma- Means of 
nure may be applied ; or finally, green crops may soil con- 
be plowed under to act as fertilizer. By these 
different means, soil fertility may be conserved. 

Chemical fertilizers, such as nitrate of soda, muriate of 
potash, and acid phosphate, furnish no humus and provide 
chemical elements only. On the other hand, fertihzers 
which are animal products, like ground fish, bone meal, and 
dried blood, do contain organic matter which decays in the 
soil. Of especial value, however, are stable Theferti- 
manure and green crops used as fertilizers. ^*^'^''^- 
These possess not only chemical elements, but are particu- 
larly valuable for their humus. While stable manure is 
very effective, its high price may prevent its use from be- 
coming general. On the other hand, green or cover crops 
are cheap and equally effective. 

A cover crop, or a green manure crop, is a crop sown with 
the avowed purpose of plowing it under when it reaches 
the proper stage. The farmer sows this crop in the late fall 
and lets it cover the ground all winter because he knows that 
something is bound to grow on his land during cover 
the late fall and early spring. He prefers to ^^°^^- 
have a crop which he may use for purposes of fertilization, 
rather than a mass of weeds which will stand in the way of 



150 Elements of Economics 

cultivation. Then too, in midsummer, when he ceases to 
cultivate corn, the wise farmer, rather than let weeds get a 
start, plants a cover crop between the rows of corn. These 
crops not only protect the ground from the fierce rays of 
the sun and thus help it to hold moisture, but they also 
develop a good growth of stalks and leaves that will prove 
invaluable as green manure when they are plowed down 
and left to rot. 

Of these cover crops the most valuable are " legumes " 
(peas, beans, clover, vetch, rape, and alfalfa), on the roots 
of which appear small bulbous formations containing am- 
monium compounds from which nitrogen is derived. These 
nodules are the product of bacteria which turn air nitrogen 
into soil nitrogen. Through few other plants can the free 
nitrogen of the air be converted into nitrogen that may be 
utilized by plants themselves. Thus, these legumes not 
only furnish splendid stalks and leaf growths for humus, 
but in addition fix that most expensive of the fertility ele- 
ments, nitrogen. 

From this discussion it may be seen that in America the 
problem of soil fertility is not difficult of solution. While 
it is true that many sections of the country, through igno- 
rance or carelessness, have suffered the effects of soil ex- 
haustion, it is equally true that these same regions, by wise 
The care and management, may be restored to their 

outlook. former fertility. It is likewise evident that there 
is no necessity whatsoever for the soil enjoying present 
fertility to be exhausted of its fertile quahties. Wise 
care, good judgment, and increased knowledge are the fac- 
tors essential to a successful solution of the problem. The 
agricultural school to-day attempts to supply the farming 
population with this increased knowledge. 



Soil Fertility 151 

TOPICS FOR CLASS DISCUSSION 

1. What is "soil exhaustion?" 

2. What does it involve ? 

3. Can you name any sections where the one crop system is still 
extensively employed ? 

4. What method does nature provide for the maintenance of 
humus in the soil ? 

5. How have men thwarted nature's means of humus conserva- 
tion? 

6. By what methods can manure be more effectively used ? 

7. Upon what elements does soil fertility depend? 

8. Describe a piece of land and explain how you would restore its 
fertility. 

g. What are "cover crops"? 

10. What advantages are derived from their use ? 

11. Explain the value of legumes to the farmer. 

REFERENCES 

The New Earth — W. S. Harwood. 
How to Choose a Farm — T. F. Hunt. 
The Elements of Agriculture — G. F. Warren. 
A Little Land and a Living — Bolton Hall. 



CHAPTER XIX 

The Production of New Species 

I. The process of selection 

1 . Artificial selection : 
a. Its meaning 

h. An example 

c. How accomplished 

2. Natural selection : 
a. Its meaning 

h. An example 
c. The final result 

11. How man utilizes selection 

1 . In changing animal life : 
a. The transformed hog 

h. Different types of horses 
c. The modern hen : 

(i) The change effected 

(2) The advantage 

2. In changing vegetable life : 
a. The new variety of wheat 
h. New varieties of corn 

c. New fruits and vegetables 

3. The conclusion 

Another problem connected with agriculture is that fur- 
nished by the conscious production of new forms of plant 
and animal life. Formerly, such a change in the natural 
order would have been regarded as evidence of witchcraft, 
and the person possessed of such power promptly burned 

152 



The Production oj New Species I53 

at the stake. To-day, however, this is rightly regarded as 
one of the triumphs of modern agriculture. 

The Process of Selection. — Selection is either artificial 
or natural. Artificial selection is the process by which men 
perpetuate or destroy certain desirable or unde- Artificial 
sirable characteristics in animals and plants. ^^^'^^^''^^ 
For example, the cat, belonging to one of the most and 
ferocious families in the animal kingdom, was example. 
originally fierce and wild. To-day, it is so gentle and quiet 
that it loves to be played with and caressed. It has, indeed, 
become the plaything of children. 

How has this wonderful transformation been accom- 
plished? Simply by a process of artificial selection. For 
centuries, man has not permitted any but the gentlest cats 
to live. In this manner, the quiet and docile How ac- 
cats, generation after generation, transmitted '^°^P^'^^^^^- 
their gentle characteristics to their kittens, until to-day we 
have the domestic pet at our fireside. By a similar process 
other domestic animals were transformed from wild into 
tame creatures. Man selected in the parents those quali- 
ties he desired in the offspring, and thus determined the 
character of the coming generation. 

In natural selection man plays no part. Natural condi- 
tions determine those that are to survive, and their quali- 
ties are thus transmitted to their offspring. For example, 
in the wilds of India, ferocity is essential to the Natural 
cat family. Survival depends on this quality, selection: 
Hence, the ferocious tiger survives, while the less and"^"^ 
ferocious is easily killed or starves to death. In example. 
this manner a rigorous process of natural selection destroys 
the gentle and perpetuates the fierce qualities required in the 
tiger. 



154 Elements of Economics 

By the process of natural selection, those forms of life 
best able to escape enemies in their particular locality 
adapt themselves to it, and survive. But thousands of 
The final others, uot SO wcll adapted to their environment, 
result. 2J.Q ]jjiie(j in their struggle for existence. A good- 

sized cod lays from thirty to fifty millions of eggs, but only 
a few of those that are hatched ever survive to adult life. 
The remainder are destroyed by the cod's enemies either 
before or after hatching. Thus, in the course of centuries, 
this " survival of the fittest " produces a creature adapted 
to its own environment. 

Natural and artificial selection differ in one fundamental 
respect. The former is unconscious ; the latter, conscious 
and deliberate. Natural selection occurs unknowingly, 
without the intervention of any conscious will, while artifi- 
cial selection takes place with a deliberate end in view. 
The cod's young are accidentally destroyed by their ene- 
mies searching for food, without the thought of developing 
a strong t3^e of codfish. On the other hand, the fierce, 
wild cats are deliberately killed by man in order to produce 
a quiet, gentle type of cat. 

How Man utilizes Selection. — Through artificial selec- 
tion men have changed and are still changing various forms 
of life coming within their power. This may be seen both 
in the animal and vegetable world. Southdown sheep and 
the two-minute trotter are products of artificial selection 
as much as the thornless cactus and the Burbank potato. 

Artificial selection has revolutionized animal life. A 
In animal striking instance of this is seen in the transforma- 

lif e • 

Th'et ans ^^^^ ^^ ^^^ ^■^*-*S- The wild mouutaiu hog, with 
formed hog. his sharp back, raw-boned body, and long legs, 
was little suited to the pork market. The hog breeder, 



The Production of New Species 155 

therefore, proceeded to change this scrawny, razorback crea- 
ture into a fat, edible animal. This he did by selecting from 
each generation the short-legged, fat, quiet hogs to be the 
parents of the next generation. In this manner, after the 
process had continued many years, a type of hog satisfying 
all the requirements of the market was produced. 

So with horses this same process of selection has been car- 
ried on. Some horses must be fast, others suited to light 
work, and still others capable of drawing the jjiff^^g^^ 
heaviest loads. In response to these demands, iypes oj 
horse breeders have finally developed fast race 
horses, all-around work horses, and draught horses of great 
bulk and strength. 

Chickens have likewise been transformed. The hen, in 
her wild state, laid a few eggs a year and hatched them 
all. The modern hen — the product of care- The modem 
ful artificial selection — lays ten times as many ^^'^• 
eggs in the course of a year and may even be induced to 
refrain from setting. The value of this increased egg sup- 
ply is obvious. The cost of keeping the chickens remain- 
ing the same, the additional eggs furnish the farmer with 
increased profits. 

Recently, however, the most remarkable results from 
artificial selection have been attained in the development 
of vegetable rather than of animal species, in vege- 
Students of plant life, during the later nine- table life: 
teenth century, have created many new vegetable types. 

Consider, for example, the work of the government experi- 
ment stations in developing a new variety of cereal capable 
of resisting disease. The gravest foes of the farmer during 
late years have been blight, scale, and similar forms of 
plant disease. An attempt was therefore made to develop 



156 Elements of Economics 

a species of wheat that would not succumb to blight. Ex- 
periment after experiment was made with this end in view, 
and men were sent all over the world to look for kinds of 
The new wheat that would resist blight. Such a type of 
variety oj wheat was evolved. At the same time, settle- 
ments were being made on the dry lands of the 
West, where the rainfall is only one third of that along the 
Atlantic plains. Here, the land being fertile and the water 
scarce, a kind of wheat capable of resisting drought was 
produced. Eventually, by careful selection, there was 
further developed a variety of wheat not only requiring little 
moisture, but also comparatively free from blight. 

The corn belt in the Middle West furnishes another in- 
teresting example of the results of selection. The manu- 
facturers of corn oil desired a corn containing a high per- 
centage of oil, while the manufacturers of certain corn food 
New found a low percentage of oil desirable. To 

varieties of meet thcsc different demands, experiments were 
made on a certain variety of corn containing 
six per cent of oil. As a result, this same corn in the 
course of a few years was made to produce one variety 
containing nine per cent of oil, and another containing two 
per cent of oil. 

Through the same means the splendid market tomato is 
grown from a weed ; the luscious Baldwin is the descendant 
New fruits ^^ ^^^ thom apple; grains are produced with 
"■nd qualities hitherto unknown ; and Burbank prom- 

vegetahles. • • ^.1 r . 11 j. u 

ises m the future a seedless strawberry. 

Artificial selection has proved one of the most potent 

The forces at the disposal of the agriculturist. 

conclusion. Through it he has been enabled to revolutionize 

his industry and to place upon the market multitudes of 



The Production of New Species 157 

new products. In industrial life, through the domestication 
of animals and the gradual development of beasts of bur- 
den, artificial selection has exercised an equally potent in- 
fluence. 

TOPICS FOR CLASS DISCUSSION 

1. What is selection ? 

2. Can you cite any local instances of the selective process? 

3. Distinguish between natural and artificial selection. 

4. What is the purpose of artificial selection ? 

5. Name some of the important contributions of artificial selection 
to agriculture ; to civilization. 

6. How does the modern farmer utilize selection ? 

7. Explain the transformation of wild into domestic animals. 

8. What may selection accomplish in the vegetable world ? 

REFERENCES 

The New Earth — W. S. Harwood. 
The Origin of Species — Charles Darwin. 
Principles of Biology — Herbert Spencer. 
Heredity — J. A. Thompson. 



CHAPTER XX 

American Industry 

I. Early American industry 

1. Kinds of industries 

2. The colonial policy : 
a. Its meaning 

h. How applied by England 

c. How carried out: 

(i) By restrictions on machinery 

(2) By regulating commerce 

(3) By restricting manufacturing 

d. EfTects of this policy 

3. Condition after the war : 

a. The new danger 

b. The proposed remedy 

II. Later character of American industry 

1. Inventions: 

a. Their importance 

b. Their effects : 

(i) On mechanical power 

(2) On transportation facilities 

(3) On labor-saving devices 

2. The " factory system " : 

a. Its essential features 

b. Its advantages : 
(i) In production 
(2) In consumption 

c. Its disadvantages 

Another field which has developed rapidly In the past few 
decades is that of industry. Not only in agriculture, but 

158 



American Industry 159 

also in manufacturing, has America realized hei" latent pos- 
sibilities. 

Early American Industry. — The American colonists 
had open to them three kinds of industries. In the first 
place, they might engage in the primary industries, such as 
fishing, hunting, lumbering, mining, and quarrying, — all 
of which are concerned in converting natural resources into 
economic goods. In the next place, they might engage 
in the secondary industries, which work on the raw Kinds of 
or semi-finished product, such, for example, as 'industries, 
shipbuilding, iron or textile manufacturing, and the manu- 
facture of woolen goods, hats, clothing, and similar 
articles. Finally the American colonists might engage in 
another form of industrial activity, — commerce. The harbor 
facilities, the proximity of the West Indian markets, to- 
gether with the development of manufacturing and of agri- 
culture, afforded every opportunity for an easy exchange of 
commodities. 

Had the colonists been content to engage only in the pri- 
mary industries, involving the production of raw material, 
no clash with England might have occurred. According to 
the general colonial policy of the seventeenth -pj^g 
century, colonies existed for the good of the mother colonial 
country. It was their function to supply raw ,, ' 

J rr- J Meaning 

materials for the home country to manufacture and appH- 
and sell back to them. England attempted to '^^''■^°^- 
apply this theory by requiring the colonies to produce only 
raw materials, by transporting these raw products in her own 
ships to be manufactured at home, and by carrying back 
in her own vessels the finished products to be sold in Amer- 
ica. In this way, the English manufacturer and merchant 
made several intermediary profits. 



i6o Elements of Economics 

To carry out this policy effectively, England resorted to 
many devices. Since manufacturing involved the use of 
Uow machinery, the home government passed acts 

carried out. prohibiting the exportation of machinery to the 
colonies. But, despite this discouragement, the colonists 
journeyed to the English factories, imported some labor, 
brought in an occasional drawing or pattern, and, above 
all, proceeded to invent their own implements. In this 
manner, colonial industry and commerce grew apace and 
evoked the wrath of the mother country. 

To accomplish its end. Parliament also passed, during the 
middle of the seventeenth century, the Navigation Acts, 
regulating and restricting commerce. Under these acts, 
the monopoly of English trade was to be held by English 
ships and English subjects. As the colonists began ship- 
building at an early date, these acts struck a hard blow at a 
rising American industry and a growing American commerce. 
Then, again, these Navigation Acts enumerated certain ar- 
ticles to be exported from the colonies to Great Britain only. 
Later on, other acts were passed, all of which were intended 
to limit and restrict colonial commerce. 

In addition, England discouraged American industry by 
passing acts forbidding the colonies to manufacture cer- 
tain goods produced in England. This prohibition was 
particularly severe on the New England colonies, where 
every effort had been made to encourage industry. The 
Woolen Act of 1699 prohibited the exportation of woolen 
goods from any colony to a foreign country or from one 
colony to another. Later on, similar restrictions were 
placed on other industries. 

The colonists petitioned, threatened, and resorted to every 
possible means to circumvent the law; while the English 



American Industry l6i 

were equally insistent and determined to carry out their 
policy. The Northern colonies suffered most Efecis oj 
severely from the effects of this narrow policy, ^^" pohcy. 
because it denied the inhabitants of this region their logi- 
cal occupations, — shipbuilding, manufacturing, and com- 
merce. Therefore, from an economic standpoint, the situ- 
ation was critical and the war inevitable. 

While the Revolutionary War was in progress, national 
industry was really beginning. The English blockade, 
following the declaration of war and continuing throughout 
the struggle, forced the colonists themselves to Condition 
manufacture. But when peace was declared, ^**®''the 
American industry faced a new peril. For The new 
years, European manufacturers had been stocking d<^n&«^- 
up goods. When the war was over, these goods flooded 
the American market. Handicapped as the American manu- 
facturers were by crude machinery and high-paid labor, they 
were unable to compete with their foreign rivals. 

To meet this situation, the American manufacturer natu- 
rally turned to some form of legislative protection. This 
was first afforded by the Tariff Act of 1789. Soon after, 
Alexander Hamilton, Secretary of the Treasury, made a 
strong plea for protection in his famous report on the status 
of manufactures. In this report, he took the The remedy 
position that " customs duties " must be levied ^<'^&^^- 
if the " infant industries " of America were to compete suc- 
cessfully with the estabhshed industries of Europe. As a 
result of his recommendation, the rates in the Tariff Act of 
1789 were increased in 1790, and again in 1792. In this 
manner was inaugurated that policy of protecting Amer- 
ican manufactures, which, with slight interruptions, has 
continued to the present day. 



i62 Elements of Economics 

Later Character of American Industry. — At the close of 
the eighteenth century, whatever industries existed in Amer- 
ica were conducted along simple Hues. To-day, industry is 
highly organized and industrial methods are extremely 
complicated. 

Without the inventions of the last one hundred and fifty 
years, men would still be working singly and inefficiently, 
inven- Modern industry is founded on inventions. 

^, . * . Through them machinery has come to the aid of 

Thetr im- ° -^ 

parlance. man who has learned that, by working coopera- 
tively with the help of machinery, industrial miracles can 
be accomplished. Steam and electric power are slaves, 
willing and eager to do the work of man. Inventions are the 
means whereby man has directed this mechanical power. 

The effect of inventions may be seen chiefly in three direc- 
tions. In the first place, through inventions, mechanical 
Their powcr has been utilized to direct industry. 

efects. Man's physical strength is infinitesimal. Me- 

chanical power is therefore brought in to make the " wheels 
go around." 

Inventions have, in the second place, revolutionized the 
means of transportation. As soon as men discovered that 
the wheels of industry could be driven more cheaply and effi- 
ciently by mechanical power than by human energy, they 
applied this knowledge to improving their transportation 
facilities. The increased supply of economic goods could 
thus be transported cheaply between distant places. The 
development of the railway, the telephone, the telegraph, 
the trolley car, and the commercial automobile have all 
contributed vastly to industrial development. 

Inventions have finally exercised a wonderful influence on 
labor. The Yankee is noted for doing nothing by hand that 



American Industry 163 

may be done more quickly or cheaply by machinery. As a 
result, more labor-saving devices have been invented in the 
United States than in any other country. Examples of 
such machinery are found everywhere. In lifting and 
carrying heavy masses of iron and lumber, great cranes now 
do the work once done by human muscles. The old hand 
press of Benjamin Franklin's time has been replaced by the 
huge printing machines of the present day. By the inven- 
tion of labor-saving machinery, the Yankee has caused his 
head to save his hands. 

The logical outcome of these new conditions brought 
about by inventions was the factory system of industry. 
It has already been pointed out that during colonial times 
American industrial methods and processes were simple 
and easily performed. The home was the seat r^-^e 
of industry. Here was done the work of spin- "factory 
ning, weaving, and cloth making. Because in- 
dustry was confined to the home, this method of essential 
manufacture was called the " domestic system " ■'"^'^'"'■"• 
of industry. However, with the advent of the new inven- 
tions of the latter half of the eighteenth century, industry 
required entirely new conditions. Complicated machinery 
could not be installed in the home ; it must be separately 
housed in the factory. Things were thus no longer hand- 
made and home-made, but machine-made and factory- 
made. Labor, too, instead of consisting of a small family 
group was now made up of great groups in large factories. 
In this manner, the nineteenth century witnessed the 
development of the " factory system " of industry. 

The advantages of this system are seen primarily in the 
production of wealth. The great quantities of goods pro- 
duced by the factory make possible a decrease in the 



164 Elements of Economics 

cost of manufacture, well illustrated by the following table 
Its prepared by the United States Department of 

advantages. Labor. The table refers to the manufacture of 
one hundred pairs of " men's medium-grade calf, welt, lace 
shoes, single soles, soft box toes " : — 





1863 


1895 


Different operations performed 

Different workmen employed 

Time of work — Hours 


73 

I 

1831 

40 
I4S7-9I 


173 

371 
2^4 


Time of work — Minutes 

Labor cost 


36.3 







The first column represents conditions under the domestic 
system of industry ; the second, under the factory system. 
The number of persons working on the shoes has increased 
from one to three hundred and seventy-one, yet at the 
same time the total labor cost has decreased to almost one 
eighth of its former amount. With this reduction in the 
labor cost there has, however, been a great increase in the 
cost of tools and machinery. 

From the standpoint of consumption the advantages of 
the factory system are no less evident. Things which were 
formerly produced in the home with great care and expense 
are now cheaply supplied by the factory. Hosiery firms 
in one week turn out ten thousand dozen pairs of stockings ; 
the factory deluges the housekeeper with manufactured 
breakfast foods and canned fruit. Because the factory does 
all this more cheaply than the home, man's consumption has 
become more varied. 

The factory system of industry has some disadvantages 



American Industry 165 

also. These were felt chiefly at the outset, when large 
numbers of skilled laborers were forced out of work by the 
introduction of machinery. However, after an adjustment 
to the new conditions had been effected, this evil was in part 
removed. A more present evil is found in the fact that 
individuals, living and working under the factory ns dis- 
system, are subjected to the harmful conditions ^■'^'"'^niages. 
imposed by that system. In this connection attention has 
already been called to the evils of child labor, to the danger 
from unguarded machinery, from dust, high temperature, 
and lack of ventilation. Then, too, the massing of laborers 
in large cities near factories presents a serious problem. But 
after all, these conditions are transitory and may in the 
course of time be remedied. 

TOPICS FOR CLASS DISCUSSION 

1. In what industrial qualities did the early colonists differ from 
the Indians ? 

2. Why did the colonists wish to develop secondary industries ? 

3. What important influence did the division of industries — 
agriculture in the Southern, and manufacture and commerce in the 
Northern colonies — have upon the later history of the United States ? 

4. Was the English colonial policy ultimately beneficial to Eng- 
land ? To the colonies ? 

5. What parallel may be drawn between the English colonial 
policy of 1700 and the American colonial policy of 1900 ? 

6. Were the colonists justified in objecting to the British re- 
strictions on their commerce and manufacture ? 

7. Had the American manufacturers no alternative, m 1789, but to 
ask for a protective tariff ? 

8. Was Hamilton correct in assuming that a nation should be self- 
supporting through the production of all the necessaries of life ? 

9. What factors made possible the rapid advance of American 
manufactures after 181 5? 



1 66 Elements of Economics 

10. What advantage had the American over the European manu- 
facturer ? 

11. What is the importance of inventions to society ? 

12. Where do the benefits of inventions go ? 

13. What is the most effectual way of encouraging inventors ? 

14. What are the leading causes of the development of the factory 
system ? 

15. What are the chief evils of the factory system ? 

16. Can the evUs of the factory system be separated from it? If 
so, how ? 

17. Was the factory system inevitable? 

18. Are there any ways in which the factory system can be super- 
seded ? 

19. Has the increased amount of goods produced under the factory 
system made up for the loss individually which has been the lot of 
many? 

REFERENCES 

Industrial History of the United States — K. Coman. 
Economic History of the United States — E. L. Bogart. 
Industrial Evolution — CD. Wright. 
The Factory System — R. W. C. Taylor. 
Students' History of United States — E. Channing. 
The Industrial Revolution — A. Toynbee. 



CHAPTER XXI 

Large Scale Production 

I. Its nature 

1. What it means 

2. The former method 

3. The present method : 
a. An illustration 

h. Its essential features 
c. How it has spread 

11. Its advantages 

1. Decreased cost of production 

2. Control of the product 

3. Utilization of by-products : 
a. Its meaning 

h. Some examples 

4. Specialization in industry 

III. Its disadvantages and consequences 

1. The disadvantages 

2. The consequences : 
a. On labor 

h. On capital 

3. The conclusion 

Nature of Large Scale Production. — The logical out- 
come of the factory system is the system of large scale pro- 
duction ; that is, production which is carried on with such a 
high degree of organization and with such a great mass of 
capital that the producers, in order to facilitate what it 
and cheapen operations, are able to utilize the '^^^'^s- 
most modern methods and appliances and to employ the 
most efficient labor. 

167 



1 68 Elements of Economics 

Consider, for example, in the iron industry, the difference 
between the methods employed twenty-five years ago and 
those used to-day. When iron ore was discovered in the 
Lake Superior region after the iron industry had been 
The former Centered at Pittsburg, the manufacturers of iron 
method. wished to transport the ore to the coal district. 
To accomplish this, steamboats were employed to carry 
the ore down the Lakes to a point near Pittsburg ; and then 
the ore was taken from the boats by means of hand tools, 
such as shovels and wheel barrows. This simple method of 
performing the work was known as small scale production. 

In contrast to this, to-day, we have the methods of large 
scale production. The ore, dug from the ore fields with 
steam shovels, is hauled to the lakeside and emptied on a 
The high wharf. From this wharf the iron ore is 

^'^^^h'd- dropped through shutes into the hold of an ore 
An iiius- ship which then proceeds to the lower Lake ports. 
tration. Here special electrical machinery operates huge 

grab-buckets, which drop into the hold of the ship, grab 
from six to ten tons of ore at once, and transfer it to the 
cars waiting to convey it to Pittsburg. By means of these 
grab buckets, ten thousand tons of ore can be transferred 
from the vessel to the cars in a few hours. In all these pro- 
cesses it will be observed that muscular energy has been re- 
placed by mechanical appliances. 

But these appliances are not secured for nothing. The 
unloading plant itself costs a quarter million dollars, — a sum 
Its essen- greater than that represented by the entire plant 
Hal features. q£ |-]^g small scalc produccr. Thus, large scale 
production necessitates not only the most modern methods 
and machinery, but also vast sums of capital centralized 
in a few hands. 



Large Scale Production 169 

The development of large scale production in the United 
States during the last quarter of the nineteenth century has 
been phenomenal. By no manner of means has this method 
been confined to the iron and steel industries. How it 
On the contrary, it has spread to the production ^"•^ spread. 
of oil, of sugar, of tobacco, of bread products, of electrical 
appliances, of locomotives, and indeed of practically all the 
leading industries of the country. 

Advantages of Large Scale Production. — Many advan- 
tages are derived from this system of production. It is 
obvious at the outset that new methods and ap- Decreased 
pliances cheapen the cost of production. On this cost of 
point, however, sufficient has been said in connec- 
tion with the factory system. But large scale production 
decreases cost of production, not only through the use of 
improved machinery, but also through the control of raw 
materials and the utilization of by-products. 

In the first place, this system of industry aims to place in 
the same hands the control of the product from the time it is 
raw material until it has been converted into a finished or 
semi-finished product. This fact may be well illustrated 
by the development of the Carnegie Steel Com- control of 
pany. Mr. Carnegie, who controlled a small the 
steel mill, wished to own also the raw materials, 
— ore and coke, — as well as the means of transporting 
them to his works. He therefore proceeded to secure con- 
trol, successively, of the Frick Company's coal and coke ; 
of extensive ore fields in the Lake region ; and, finally, of 
certain transportation lines running into Pittsburg. In this 
manner, the Carnegie Steel Company secured control of 
steel from the ore bed to the finished rail. 

Another striking advantage of large scale production is 



170 Elements of Economics 

found in its utilization of by-products. By-products are 
the waste of industry, which by special processes are con- 
utiUzation vcrted into economic goods. In the packing 
°* ^^~ houses of the West, for example, bones are made 

products: 

jis into many useful articles ; fats provide glycerine 

meaning. fgr the prcpa^jion of soap and toilet articles ; 
and the gray^matter of calves' brains is turned into medi- 
cine for the treatment of neAous diseases. Through the 
aid of by-product utilization, the great Western packer is 
thus able to maintain his business against local compe- 
tition. 

Other industries effect similar savings. Slag, or waste 
from iron furnaces, is now made into high-class brick-. 
" Buckwheat " and " dust " coal were formerly throwjj 
away as refuse after the larger sizes had been screened out. 
To-day, however, this coal is utilized in the production • 
Some of steam. Perhaps the best-known utilization 

examples. ^f by-products has come with the development 
of the cotton seed oil industry. In i860, cotton seed was 
garbage; in 1870, fertilizer; in 1880, cattle food; and in 
1890, table food. Such striking transformations make us 
wonder what the future may bring forth. 

Still another great advantage resulting from large scale 
production is found in specialization in industry. Although 
large scale production has brought a large number of plants 
under one management, this centralization is resulting in 
speciaii- each plant's specializing in the manufacture of 
zation in some particular product. For example, in manu- 
in us ry. facturing blacksmiths' supplies, one factory makes 
horseshoes ; another, horseshoe nails ; a third, drills ; and a 
fourth, bolts and nuts. In this manner industry is being 
constantly specialized ; and, of course, along with this de- 



Large Scale Production 171 

velopment, highly speciaHzed skill and minute subdivision 
of labor have resulted. 

Some Disadvantages and Consequences. — Large scale 
production may also have its disadvantages. An enormous 
arnount of capital, concentrated in the hands of a few indi- 
viduals, gives a small group of men extraordinary power. 
This power may be used for ill as well as for good. For 
example, it may be used to secure " special privi- xhe dis- 
lege," — a corrupt alliance between government advantages, 
and business. Or, this power may be deliberately used to 
crush competing men and companies. Likewise, the bene- 
fits resulting from the decreased cost of production may be 
enjoyed, not by the community in the form of lower prices 
and higher wages, but by the great capitalists in the form 
of higher prices and lower wages. 

Some other consequences, which may or may not be dis- 
advantageous, result from the system of large scale produc- 
tion. In the first place, men do not produce finished goods. 
This result was, of course, first brought about by the divi- 
sion of labor, but the great specialization of large scale pro- 
duction has rendered this all the more inevitable. For- 
merly a man made a shoe, or a hat, or a coat, ^j^g conse- 
To-day he performs but one operation required quences: 
in the productive process. For example, a ^^ ^'^^°^' 
man may simply polish the oil cups of locomotives, which are 
eventually used to haul food across the continent for his 
table. He no longer produces food, but directs his labor 
toward the performance of one simple operation. This 
change has resulted in labor's being highly specialized and 
organized in the form of a great industrial army. 

On the other hand, the effects of this system of large scale 
production have been felt perhaps even more in the organiza- 



172 Elements of Economics 

tion and management of capital. The old, simple methods 
of doing business are rapidly disappearing. Formerly a 
man with a small amount of capital engaged in 
business independently ; to-day he becomes one 
of a thousand all engaged in a common business. The 
single-handed capitalist has been replaced by the huge 
cooperative corporation, which may be managed for the 
benefit or the detriment of the community. 

In these various ways the modern system of large scale 
production has resulted in momentous consequences. 
The con- While some of these are disadvantageous, they 
elusion. g^j-g generally transitory and remediable. Those 
that are advantageous, however, are permanent and in- 
creasing. 

TOPICS FOR CLASS DISCUSSION 

1 . Outline the chief factors which have made large scale production 
possible. 

2. What effects have inventions had on large scale production? 

3. Discuss the chief advantages of large scale production. 

4. Are these advantages an integral part of, or are they merely 
incidental to, large scale production ? 

5. Could modern society exist without large scale production ? 

6. Discuss the economic effects on China of introducing a system 
of large scale production. 

7. Discuss the importance of by-products to modern industry. 

8. What has been the chief cause of the utilization of by-products ? 

9. What is the relation between large scale production and the 
use of by-products ? 

10. Does the saving through by-products benefit the consumer ? 

11. Are the advantages derived by the public from large scale pro- 
duction more numerous than the disadvantages ? 

12. Is it likely that large factories will ever be devoted to portrait 
painting ? Give reasons. 



Large Scale Production 173 

13. For which of the following articles is large scale production 
appropriate : hand-made shoes ; machine-made shoes ; furniture ; 
nails ; cut glass ; orchids ; millinery ? 

14. Do you understand that all business is destined to become 
large scale business ? 

REFERENCES 

The Story of Iron and Steel — J. R. Smith. 
Economic History of the United States — E. L. Bogart. 
Census Reports on "Manufactures," 1900-1910. 
Industrial Evolution — CD. Wright. 



CHAPTER XXII 

Business Organization 

I. The earlier forms 

1. The " entrepreneur " 

2. The partnership : 

a. Its nature 

b. Its advantages 

c. Its disadvantages 

II. The later forms 

1 . The corporation : 
a. Its nature 

h. Its advantages : 
(i) Great capital 

(2) Limited liability 

(3) Good management 

2. The trust : 

a. Its nature 
h. Its different forms : 
(i) The '' pool " 

(2) The board of trustees 

(3) The holding company 
c. Its federal regulation : 

(i) Why necessary 

(2) The Sherman Anti-Trust Act 

(3) Influence of the Supreme Court 

(4) The outlook 

The industrial revolution, from the domestic system to 
large scale production, is reflected, in the world of business 
management, in the change from the single employer to the 
great trust. These later forms of business organization 
are more easily understood after a study of the earlier forms. 

174 



Business Organization 175 

The Earlier Forms. — At first, business was conducted 
simply by one individual. To-day, this method is still 
pursued by the single business man who launches out for 
himself. Because he undertakes the full responsi- ^j^^ 
bilities of the business, he is called an " entre- " entre- 
preneur " or enterpriser. The term " entre- p"^®"^- 
preneur " is equally applicable to the peanut vender, to 
the corner grocer, or to the head of a great factory. An 
entrepreneur is simply one who " runs " his own business, — 
assuming the risks, receiving the profits, and bearing the 
losses. 

Under the partnership form of business organization two 
or more men go into business together. The The part- 
single entrepreneur is replaced by two, three, ^^^rship: 
or four men who jointly conduct the business and share 
its gains and losses. 

This method of doing business has a double advantage. 
In the first place, the capital is increased ; and, secondly, the 
work is more efficiently performed by each partner's spe- 
cializing in some particular direction. However, the part- 
nership has two serious disadvantages. The first its advan- ■ 
of these lies in the fact that each partner is re- dfsadmn- 
sponsible, up to the value of his personal pos- ^^ses. 
sessions, for all debts contracted by the other partners in 
pursuance of the business. A further disadvantage of the 
partnership is the limited amount of capital it controls. 
Although the amount is usually considerably greater than 
that which a single business man commands, yet it falls 
so far short of the needs of modern times that other forms 
of business organizations were devised. 

The Later Forms. — To meet the necessities of large 
scale production the business corporation came into exist- 



176 Elements of Economics 

ence. A corporation may be defined as "an association of 
individuals, known as stockholders, who are empowered by 
legal charter to elect annually a board of directors, and 
through it to act as one person in the conduct of the specified 
business." The corporation is thus a legal entity, existing 
only in the eyes of the law. Although it is an artificial 
The cor- crcaturc, it possesses many attributes of natural 
poration: persons. For example, it has power to sue and 
Its nature, ^q j^g g^g^ . ^q hold, purchasc, and convey real 
and personal estates ; to appoint officers and agents ; and 
above all, it is empowered " to have succession, by its 
corporate name, for the period limited in its charter, and 
when no period is limited, perpetually." This last feature 
of perpetual existence is extremely valuable to the corpora- 
tion because dependence upon the life of an individual entre- 
preneur or partner creates a most undesirable instability. 

Aside from its permanent character, the corporation, as 
a form of business organization, possesses other advantages. 
Its ad- Chief among these is its abihty to amass a great 

vantages. g^J^ ^f Capital. Thousauds of individuals, 
through their purchase of stock in the corporation, contrib- 
ute millions to its capital. 

This ability of the corporation to raise capital depends 
largely upon the principle of limited liability. According 
to this principle, stockholders are liable for the debts of the 
company only to an amount equal to the par value of the 
stock. If the business fails, therefore, a single stockholder 
can lose only the value of his stock. The only exception to 
this general rule is in the case of national banks, where the 
liability is double the amount of the par value of the stock 
subscribed. 

The corporation also possesses advantages from the stand- 



Business Organization 177 

point of the management of its business. This form of 
business organization secures flexibihty. Through the 
simple process of a stockholders' election a complete change 
in the management may be effected. Likewise, through the 
offer of high salaries the corporation is able to secure the 
services of efficient men far beyond the reach of smaller 
concerns. Finally, the economies of large scale production 
made possible by the resources of the corporation constitute 
perhaps the greatest advantage of this form of business 
organization. 

Just as the partnership was superseded by the corporation, 
so the single corporation has been superseded in many fields 
of activity by a still larger unit of management, the trust. 
The trust, like the corporation, is a form of The trust: 
business organization devised to meet a definite ^^^ nature. 
economic need. It may be said to have passed through 
three stages of development. 

The first form the trust assumed is popularly known as 
the " pool." In this form, independent producers in any 
one line make agreements to eliminate competition among 
themselves either by restricting output or by fixing prices. 
The pool is so named because, under such an , , 

^ ^ Its forms. 

arrangement, the receipts of the various firms are . 
put into a common fund or " pool " and divided among 
them in a proportion formerly agreed upon. Not only has 
this system proved weak by reason of the outbreak of mutual 
jealousy and distrust, but such agreements have also been 
declared illegal. 

Therefore, the trust entered on its second stage of develop- 
ment. In this stage the various competing corporations 
turn over their stock to a central board of trustees, which 
hands back " trust certificates " in exchange. This board, 



1 78 Elements of Economics 

holding a majority of the stock of the various constituent 
companies, maintains complete harmony among the com- 
panies and regulates output and price. This is the " trust " 
in the technical sense. It has been declared illegal. 

The third form of the trust, devised because the trustee 
''trust" was outlawed, is known as the holding company. 
Under the holding company plan each corporation entering 
the combination maintains its separate existence. To 
secure unity of action, a central corporation is formed, 
empowered to hold stock of other corporations. The stock 
of the parent company is then exchanged for the stock of all 
the various constituent corporations. This places under 
one central control the voting power on the stock of all 
combining companies, thus insuring uniformity of action 
and the maintenance of prices. This third stage resembles 
very much the second, except that a board of trustees is 
illegal, and a corporation empowered to hold stock of other 
companies may or may hot be illegal. 

The holding company, then, is the modern form of busi- 
ness organization. When vast sums of capital become 
Its federal Concentrated in a few hands, some supervision 
regulation. q£ |.]^g ^gg |-q ^^hic^ they are put is required. The 
remedy, therefore, for the evils incident to trust organiza- 
tion lies in some form of government regulation. 

At first the states attempted to regulate the trusts. In 
1889 Kansas took the lead by passing a law against business 
corporations. In the same year she was joined by some 
other states ; and during the first half of the following year, 
three more states joined the movement. These laws usu- 
ally struck at all combinations regardless of whether they 
formed complete or only partial monopolies. They were 
so drastic in character that they were often declared uncon- 



Business Organization 179 

stitutional. Furthermore, the laws of the different states 
conflicted in their provisions. But above all, state action 
proved inadequate because of the hmited power of the states. 
In our dual system of government, the federal government 
alone has power over interstate commerce ; and it is 
chiefly in this kind of commerce that the great corporations 
are engaged. Not state, but federal regulation, therefore, 
became imperative. 

In 1890 the demand for federal action was so general and 
insistent that Congress passed the Sherman Anti-Trust Act. 
According to this act " every contract, combination in the 
form of trust or otherwise, or conspiracy in restraint of 
trade or-<:ommerce among the several states, or with foreign 
nations " is declared illegal. The terms of this act are so 
sweeping that they have been applied not only to industrial 
combinations, but also to railroads and labor organizations. 
In fact, the language of this act is so inclusive that there has 
been much doubt concerning its exact meaning. 

The decisions of the United States Supreme Court in 
1910 in the Standard Oil case and later in the tobacco 
case have, however, somewhat clarified the situation. 
According to these decisions, any combination which " un- 
reasonably " restrains trade is illegal. In commenting on 
this decision a recent writer says: "The purpose (of this 
act) was to forbid such contracts or combinations as tend to 
prevent . . . competition and to create a monopoly with 
power to fix prices, limit output, and deteriorate quality. 
This, therefore, is the standard by which every trade com- 
bination is to be tested. If its necessary effect is to create 
such a monopoly, it is illegal. If it has no such effect, it is 
legal. Whether in any particular case brought before the 
Court the combination has such effect is * to be determined 



i8o . Elements of Economics 

by the light of reason guided by the principles of law, and 
the duty to apply and enforce the public policy embodied in 
the statute.' " 

Thus it is possible for certain combinations to be declared 
illegal, and for others to exist within the law. When one 
form is declared illegal, another in harmony with the law 
will be devised. The process of evolution is at work in 
industry as well as in society ; and large scale production is 
one of its products. But this does not mean that a trust 
organization of industry will be allowed to trample certain 
elemental individual rights. The ultimate test of this or 
of any other proposed legislation must be social welfare. 
Until the trusts conserve social welfare, the trust problem 
will be unsolved. 

TOPICS FOR CLASS DISCUSSION 

1. Name the different forms of business undertaking. Discuss 
them from the standpoint of their relative strength and weakness. 

2. Are the following entrepreneurs? a cobbler, a farmer, a con- 
sulting engineer, the boss of a section gang, a banker. 

3. Name some of the duties of an entrepreneur. 

4. What are the chief points of difference between a corporation 
and a partnership ? 

5. Why is the corporation an advantageous form of business organ- 
ization ? 

6. What advantages has a corporation as compared with a partner- 
ship ? Are there any respects in which a partnership has advantages 
not possessed by a corporation ? 

7. What is a holding company? What are the advantages 
afforded by this form of organization ? 

8. What is a trust ? 

9. Is the growth of combination in accord with economic law ? 

10. Is the movement toward combination still going on ? Is it 
likely to continue in the future ? 



Business Organization 



i»i 



11. Are all trusts monopolies? Are all monopolies trusts? 

12. What social advantages and disadvantages do you see in the 
trusts ? 

13. Is there likely to be a world corporation formed? Or a "great 
trust" in which every one will be a shareholder ? 

14. Who is the promoter ? Is he responsible for the formation of 
trusts ? 

15. What are the arguments for and against full publicity ? 

16. On what basis is the amount of capitalization of a trust de- 
termined ? 

17. What are the checks on the power of monopolies to raise the 
prices of their products ? 

18. What advantages and disadvantages do you see in monopoly? 

19. Would the abolition of the tariff result in the disappearance of 
the "trusts"? 

20. Name some of the tendencies in the organization of natural 
resources. 

21. What changes are being made in the organization of labor? 

22. Name some indications of increasing government activity in 
business. 

REFERENCES 

The Trust Problem — J. W. Jenks. 
Monopolies and Trusts — R. T. Ely. 
Trusts, Pools, and Corporations — W. Z. Ripley. 
Trust Finance — E. S. Meade. 



CHAPTER XXIII 

The Industrial Army 

I. Development of labor cooperation 

1 . The stages of cooperation : 
a. Simple cooperation 

h. Division of employments 

c. Division of labor 

d. Specialization in industry 

2. Advantages of cooperation : 
a. In regard to the product 
h. In regard to machinery 

II. The army of workers 

1. The organizer: 

a. Policies and subordinates 
h. Markets and methods 

2. The manager 

3. The " boss " 

4. The wage worker : 

a. The skilled worker 

b. The semi-skilled worker 

c. The unskilled worker : 
(i) His characteristics 
(2) Why increasing 

d. The conclusion 

The change in business organization brought about by 
large scale production has been accompanied by a similar 
development in the organization of labor. Formerly, 
industrial effort was individual and competitive ; to-day, it 
is social and cooperative. 



The Industrial Army 183 

Development of Labor Cooperation. — In the days of 
savagery, comparatively little labor was performed. Men 
fought, hunted, and fished, and women took charge of the 
primitive industries. Gradually, however, military coopera- 
tion led to industrial cooperation. Men who had worked 
together to kill a bear resorted to the same method in rais- 
ing a stone. Although no task w^s assigned to ^.g stages : 
definite individuals, each man helped the other simple co- 
by performing a like part of the same operation. °^^''^^^''^- 
This stage in the development of labor is described as simple 
cooperation. 

But simple cooperation at best is unsatisfactory. Some 
men Kke to do one thing better than another; hence the 
development of the second stage of labor cooperation known 
as the division of employments. In this stage, Division of 
one man kills game, another builds boats, while empioy- 
the women carry on agriculture or wdave cloth. 
Each produces a finished product, which he exchanges for 
the product of some one else, and thus a certain degree of 
interdependence runs through the whole group. 

The next step is division of labor. Formerly, in building 
a house one man would perform all the parts of that opera- 
tion. He would go into the woods, fell the trees, and build 
the house. But gradually the different kinds Division of 
of labor involved in the task of house building ''«*'"'• 
were divided among several individuals. One man would 
simply fell the trees ; another cut them into logs ; another 
haul the lumber to a sawmill, and another build the 
house itself. In this case several men cooperate, but each 
performs a different part of the general task. 

Finally, this simple division of labor becomes complex 
through what is known as specialization in industry, — the 



184 Elements of Economics 

fourth and present stage of labor cooperation. By means 
of this principle of speciahzation, the different parts of the 
speciaii- ^^^^ ^^^ thcmselves subdivided. For example, 
zation in in the abovc illustration, the man who chopped 
down the tree — one part of the general task — 
was provided with an ax which was the result of the labor 
of hundreds of workmen, each one of whom performed some 
particular part in the process. In this manner, modern 
methods of production have resulted in minute subdivision 
of labor and great specialization in industry. Cooperation 
has made this possible. 

By -means of this form of labor cooperation, the product 
is not only increased in quantity, but improved in quality. 
Advantages: Persons who cooperate in labor learn intimately 
Concerning the spccial tasks they perform. Each one is 
able to do his work much more effectively, there- 
fore, than he would be able to perform work involving a 
large number of separate operations. For this reason, a 
hundred workers in a shoe factory are able to turn out 
more shoes and better shoes than a hundred individual 
shoemakers. 

Another great advantage of this kind of cooperation is 
found in the fact that it makes possible the use of machin- 
ery. When an involved operation, like shoemaking, has 
Concerning been Subdivided into forty or fifty operations, the 
machinery, rougher work may often be done more quickly 
and more cheaply by machinery than by human hands. 
Thus, the sewing machine, stitching through heavy leather, 
accomplishes a speedier and better result than the individual 
hand worker. In this manner, man's inventive genius de- 
velops labor-saving machinery to take the place of human 
energy. 



The Industrial Army 185 

The Army of Workers. — To-day, all labor is cooperative, 
and the American labor force is highly organized from top 
to bottom in the semblance of an army. 

At the head of this army of workers is the organizer, — 
the commander-in-chief of his particular industry. Like 
the military commander, his duties are to determine broad 
policies and to intrust their execution to compe- The or- 
tent hands. The organizer mobilizes the forces ^^^l^^!^' , 

° Folictes and 

of labor and capital and applies them to natural subordinates. 
resources in such a way that the smallest outlay produces 
the largest return. He leaves all details to his subordinates, 
for whose competency he is responsible. 

The organizer must also have an intimate knowledge of 
the markets. He must know what goods are in demand 
and where and when this demand is most active, j^^^j^^^^ 
that is, where prices are highest. He must like- and 
wise have a thorough knowledge of industrial '^^ 
processes and methods of production, so that by-products 
may be fully utilized and large scale production carried on 
efficiently. 

Next to the organizer in this industrial army is the mana- 
ger. Like the colonel of a regiment, he executes the orders 
and carries out the plans of his superior officer. The mana- 
ger, therefore, must be in closer touch with the details of 
the business. While the organizer directs from his New 
York office the pohcy of a whole group of mills The 
throughout the country, the manager is respon- ^^.^ 
sible for the successful management of only one duties. 
of these plants. He must understand not only the labor 
market, but also the machinery in his particular branch of 
industry. It is his duty to bring these two together so that 
he may secure the greatest possible production. 



1 86 Elements of Economics 

Below the manager is the foreman or " boss," correspond- 
ing to the captain, Heu tenant, or corporal of a military or- 
ganization. It is his duty to see that the men do the work 
The that the manager has outlined. He is responsible 

jj^^ ' for getting all the work possible out of the group 
duties. of laborers under his charge. The " boss," 

therefore, requires ability to get along with his men, and to 
persuade them or compel them to work effectively. In the 
past, the Irish have made the best bosses, but Italians and 
Slavs are now being used to direct the work of their own 
countrymen. 

We now come to the ordinary workers themselves, — the 
rank and file of this industrial army. Just as the successful 
execution of a general's orders depends, in the last analysis. 
The wage- upon the bravery and power of the great mass of 
worker: soldiers, SO the real test of a nation's efficiency 
is found in the abihty and character of its great body of wage- 
workers. 

The wageworkers, for convenience, may be divided into 
three groups, — the skilled, the semi-skilled, and the un- 
skilled. The skilled worker is one who does work that re- 
The skilled quircs a longer or shorter period of training or 
worker. apprenticeship. In this class are included the 

t3^e-setter, the blacksmith, the carpenter, the skilled clerk 
and bookkeeper, and a host of others who have received 
more or less special training in their respective lines of work. 

The semi-skilled worker is one doing work that may be 
learned with comparative ease by any newcomer who has 
The semi- Ordinary intelligence and ability. Although it 
skilled is hard to give an accurate definition of the 

IVOTkCT 

semi-skilled wageworker, the number of men in 
this class is large. For example, in this group are included 



The Industrial Army 187 

the miner, the brakeman, the motorman, the mechanic's 
helper, and numerous others doing work which requires 
some Httle skill and intelligence, but no particular period of 
apprenticeship. 

The unskilled worker represents a maximum of physical 
force and a minimum of mental capacity. The street 
laborer, the coal heaver, and the ditch digger are representa- 
tives of tliis class. The number of laborers in this group is 
increasing by reason of two circumstances. In j^^ ^^_ 
the first place, thousands of immigrants to this skilled 
country, being unable to speak the English 
language, are forced into unskilled labor regardless of their 
native ability. In the second place, the rapid introduction 
of machinery often deprives a skilled worker of his regular 
labor and forces him temporarily into the lower ranks, so 
that he may now be obliged to attend to the machine 
which does his former work. 

Large scale production has left as deep an impress upon 
labor as upon capital. This twofold aspect of modern 
American industry presents some of the most The con- 
striking problems of individual and social wel- '^^^^'^'>^- 
fare. Through cooperation, industrial efficiency has been 
secured and economic progress attained. This same prin- 
ciple, however, must be utilized to attain individual effi- 
ciency and welfare in the rank and file of the great army of 
industrial workers. 

TOPICS FOR CLASS DISCUSSION 

I. What is the relation between labor cooperation and economic 
progress ? 

^. Discuss the importance of labor cooperation in securing in- 
creased production. 



i88 Elements of Economics 

3. Is cooperation increasing or decreasing in extent ? 

4. What is the relation between labor cooperation and large scale 
production ? 

5. What is the relation between labor cooperation and speciali- 
zation in industry ? 

6. Is modern labor cooperation voluntary ? 

7. Draw a diagram showing the organization of labor in modern 
industry. 

8. What elements in the colonial situation rendered the supply of 
labor small ? 

9. What differences can be noted in the available quaHty of labor 
in the early colonies and in the United States at the present time ? 

10. Is the organizer necessary to modern industry ? 

1 1 . What service does the organizer render ? 

12. Is the supply of organizing ability limited ? If so, by what ? 

13. Is the average school in America calculated to develop organiz- 
ing abihty ? 

14. What is the most significant fact regarding the wageworker in 
modern life ? 

15. What is the relation between our school system and the v/age- 
worker ? 

REFERENCES 

American Industrial Problems — W. R. Lawson. 

Labor Problems — Adams and Sumner. 

The Industrial System — J. A. Hobson. 

The Labor Movement in America — R. T. Ely. 



CHAPTER XXIV 

Transportation 

I. Railroad transportation 

1. Its importance 

2. Its rapid growth 

3. Centralized control 

4. Nature of the railroad business : 

a. The railroad a monopoly : 
(i) The reasons 

(2) Consequent problems 

b. The railroad a '' quasi public " corporation : 
(i) Receives public aid 

(2) Possesses right of " eminent domain" 

c. The conclusion 

11. Other transportation agencies 

1. The telegraph 

2. The telephone 

3. Express companies : 

a. Their growth 

b. Their regulation : 
(i) Why necessary 

(2) What Europe has done 

(3) What the United States should do 

4. Electric traction : 

a. Urban transportation 

b. Rural transportation 

c. Electrification of steam roads 

5. The progress attained 

Another distinct phase of American industry appears in 
the development of transportation facilities. Foremost 
among these facilities is the railroad ; but growing steadily 



igo Elements of Economics 

in importance are other transportation agencies, such as the 
telegraph, the telephone, express companies, and electric 
traction. Each of these demands consideration. 

The Railroad. — Railroad transportation has made pos- 
sible the American nation. Politically, it has performed an 
inestimable service by bringing the diverse parts of the union 
within easy reach of each other. To-day, the city of Wash- 
ington is nearer to San Francisco than it was, in early days, 
to Massachusetts. From an economic standpoint, the serv- 
ice rendered by the railroad has been no less profound. It 
Its im- has bound North and South, East and West, into 

portance. ^ gigantic econoiTiic unit, complete and self-sus- 
taining in all important respects. This the railroad has 
accompHshed by giving goods " place utility " ; • that is, by 
transporting goods from one place where they are not needed 
to another place where they are in demand. The railroad 
has thus become the connecting link between the producer 
and the distant consumer. 

The growth of railroad mileage in the United States has 
been phenomenal. In 1830 there were, in this country. 
Its rapid Only twenty- three miles of railroad ; in i860 there 
growth. were over thirty thousand miles ; in 1880, over 

ninety- three thousand miles ; in 1900, over one hundred and 
ninety-three thousand miles ; and in 19 10, two hundred and 
forty thousand miles. This growth in railway facihties is 
without parallel in the economic history of any other people. 

Accompanying this increase in mileage is the movement 
toward centralization of railroad control. Two hundred 
and ten independent roads, each with its own president, in 
Centralized 1 883, had been consohdated, by 1907, into fifty 
control. Qj- }ggg Thh movement toward centralization 

has been so rapid that it is not idle to speculate on the day 



Transportation 191 

when four or five men, sitting around a table, will control 
all the important track mileage of the country. At present 
sixty per cent of the mileage of the United States is under 
the control of five interests. 

The significance of this concentration becomes apparent 
only when one considers the nature of the railroad business. 
The railroad is essentially a monopoly ; that is, it performs 
a service which few other agencies perform, and the cost of 
which decreases with the increase in the volume of j^g 
business. The initial cost of constructing a nature: 
railroad is great ; and, therefore, from a social , ^ '"monopoly. 
point of view, it is an economic waste to construct another 
line to duplicate the work of the first road. Moreover, 
after the trackage, terminal facilities, and rolling stock 
have once been provided, an increase in the volume of 
business does not mean a corresponding increase in the 
expense of operation. In fact, the unit expense diminishes 
as the business increases. 

In spite of legal prohibition, railroads may use their 
monopoly power unfairly. For example, the law declares 
that railroads, in transporting commodities, shall not 
discriminate between individuals, but shall offer their serv- 
ices to all on equal terms. Nevertheless, because of the 
principle of diminishing expense, the traffic manager is ever 
tempted to accept extra business at a lower rate. This 
confhct between railroad profits and pubHc interests some- 
times leads to a violation of the principle of equal rates for 
equal service. 

Another distinctive feature of the railroad is its close de- 
pendence on the government. This close relation 
between the railroad and the public has caused the ^ !' .^"?" 

- , ^ public 

railroad to become a " quasi public " corporation, corporation. 



192 Elements of Economics 

In the first place, railroads from the earliest times have 
received, financial aid from the states. In addition to this, 
the national government has not only advanced money, but 
also contributed thousands of acres of public land. Thus 
railroads are especially indebted to the public and are clearly 
marked off from ordinary economic activities. 

But of even greater significance is the railroad's right of 
" eminent domain." According to this right, a state, upon 
the payment of just compensation, may take private prop- 
erty for public use even against the will of the owner. To 
facilitate the railroad in performing its service, the state 
has delegated this right to the transportation company 
and thus endowed it with despotic power. Railroads are 
thus peculiarly indebted to the public, and those who 
manage them should regard public welfare. They are not 
free to charge what rates they choose, to decide what sec- 
tions of the country shall prosper, or what individuals shall 
amass large fortunes. 

Beside the importance which it derives from its quasi 
public nature, the railroad business is of tremendous magni- 
tude. In 1909 the labor employed in railroading was 
The con- somcwhat ovcr 1,500,000; the capital invested 
elusion. ^g^g $18,000,000,000; and the gross earnings 
amounted to $20,377,000,000. Thus in the number of 
laborers employed and in the amount of capital invested, 
railroading is, next to agriculture, the greatest single busi- 
ness in the United States. 

Other Transportation Agencies. — While the railroad is 
by far the most important transportation agency in the 
United States, there are other agencies which play a great 
part in promoting national efficiency. Chief among these 
are telegraph, telephone, and express companies, which, 



Transportation 193 

together with electric traction, constitute an exceedingly 
important group of transportation agencies. 

The telegraph developed along the lines of railway com- 
munication. With improvements in the railroad system, it 
became necessary to have some means of speedy The tele- 
communication, not only between railroad sta- sraph. 
tions, but also between signal towers. Since the telegraph 
was the earliest means of instant communication, telegraph 
and railroad lines everywhere paralleled one another. 

However, during the last quarter of the nineteenth cen- 
tury, the telegraph met a keen competitor in a new device — • 
the telephone. Unlike the telegraph, which was immediately 
used for long distance communication, the telephone at 
first was employed only to communicate within The tele- 
buildings or to communicate between places p^o^^®- 
within the same city. Gradually, however, the sphere of 
the telephone was broadened, until, to-day, a conversation 
between New York and Chicago is an ordinary occurrence. 
Despite the efforts of the telegraph companies to secure 
trade, through the introduction of the " night letter " and 
similar innovations, the telephone has largely supplanted 
the telegraph as a direct and effective means of short distance 
communication. 

Of quite a diflferent character is the transportation fur- 
nished by express companies. While heavy commodities 
are transported by freight, small packages require a speed- 
ier, easier method of transportation. Therefore, Express 
the express business was developed in the United ^^^? °' 
States. Express companies developed side by growth. 
side with the early railroads, until, to-day, there are strong 
indications of a community of interests between them. 

At first the express business was organized locally and 



194 Elements of Economics 

conducted by a number of separate companies. To-day, 
however, this business, while not under one formal unified 
THeir control, is nevertheless combined into one great 

regulation. system operated on a business understanding so 
effectual that territory is divided and rates agreed upon 
without a sign of competitive spirit. As a result of this 
understanding, express rates in the United States are 
high. 

As a means of obviating private extortion in the carriage 
of small packages, Europe has adopted the parcels post. 
For a very low charge, the government carries packages 
of larger size than are transported through the United 
States mails. Almost every civilized country in the world, 
except the United States, has adopted a parcels post 
system. 

There is no doubt that the United States should follow 
European example; but, despite long-continued agitation, 
no parcels post law has yet been passed (191 2). A promi- 
nent senator recently stated that the reasons for this failure 
were four : the American Express Company, the Adams 
Express Company, the Wells Fargo Express Company, and 
the Southern Express Company. Whether this statement 
be correct or not, the fact remains that the express com- 
panies have worked consistently, and, so far, effectively, 
against the passage of parcels post legislation. 

The form of transportation which, recently, has had the 
most rapid growth is electric traction. While electric cars 
were operated during the last two decades of the nineteenth 
Electric century, it was not until the close of the century 
traction; ^^^ ^.j^^ a boom " in electric traction began. 
Since that time financiers have turned their attention to 
traction operations. 



Transportation 195 

The electric traction problem has three distinct phases, — 
urban transportation, rural transportation, and electrifica- 
tion of steam roads. The concentration of population in 
large cities has made the problem of urban trans- u^^g^^ 
portation most acute. While cities have grown transporta- 
greatly in extent, the business center remains 
small. Therefore, the increased population of the outlying 
regions must have some means of rapid transit. With a 
maximum of speed and a minimum of expense in operation, 
the electric car offers by far the most effective means of 
transporting the city dweller to his place of work. 

At the same time that street railways have been electrified 
and extended, inter-city and rural electric lines have been 
developed. As compared with steam roads, the cost of 
installing and operating such, lines is small. Consequently, 
transportation facilities have been afforded to sparsely 
settled districts where steam transportation would ^^^^^ 
have been unprofitable. Furthermore, a steam trans- 

j • • J.' 1 1 1 -L 1 portation. 

road, requirmg a comparatively level bed, ne- 
cessitates heavy cutting and filling. On the other hand, an 
electric car climbs almost any hill, and the cost of grading 
is thus reduced to a minimum. Hence, the rural electric 
line reaches many points not accessible by the steam railway. 
In this manner, electric traction has proved a real boon to 
the country dwellers. 

The third phase of electric traction — the electrification 
of steam roads now in use — has as yet barely begun. The 
New York Central has electrified some suburban lines run- 
ning out of New York City with gratifying results. Eiectrifi- 
Since such electrification is profitable in cases of cation of 

J IV 1 . • •> • ii T1 1 Steam roads. 

dense suburban populations, it is more than likely 

that, during the next few decades, all the suburban steam 



196 Elements of Economics 

roads running out of the larger American cities will be elec- 
trified. 

The means of transportation are the arteries of American 
business and social life. At the opening of the nineteenth 
century, the American people traveled on land at the same , 
Progress rate that Julius Caesar traveled centuries before, 
attained. Since the Roman roads were so superior, modern 
traveling might even have been slower. But during this 
one century marvelous progress was made in the means and 
methods of transportation. Space and time were annihi- 
lated, distant places connected, goods and persons easily 
transported, and communication between distant places 
established. 

TOPICS FOR CLASS DISCUSSION 

1. In what sense is transportation productive? 

2. Why is transportation a greater problem in the United States 
than in Europe ? 

3. How would the sudden destruction of all railroads affect the 
life of the American people ? 

4. If there were no railroads, could there be any "trusts" ? 

5. If one person rides on a pass, who pays for that ride ? 

6. How does the Pennsylvania Railroad differ from a large depart- 
ment store in regard to its freedom in making rates or prices ? 

7. What effect has the prosperity of the railroads on the steel 
industry ? 

8. Have American railroads in general followed or directed the 
course of settlement of the country ? 

9. Would private capital have been invested in railroad building, 
if the chance of extraordinary gain had been greater in other indus- 
tries ? 

10. Are local famines likely to be as serious in China in the future as 
in the past ? 

11. Has railroad transportation relieved or aggravated the prob- 
lem of great cities ? 



Transportation 197 

12. How has the American railroad benefited the Dakota farmer ? 

13. Can you think of any circumstances under which it would be 
wise for a raihoad to charge less than direct cost ? 

REFERENCES 

American Railway Transportation — E. R. Johnson. 

Railway Problems — W. Z. Ripley. 

Railway Traffic and Rates — E. R. Johnson & G. G. Huebner. 

Heart of the Railway Problem — F. Parsons. 

Elements of Transportation — E. R. Johnson. 



CHAPTER XXV 

Regulation of Transportation 

I. The early situation 

1 . Power of Congress : 

a. The original clause 

b. Why power was granted 

c. How first applied 

2. Growth of railroads : 

a. How favored at first 
h. What evils crept in 
c. The changed attitude 

II. The Interstate Commerce Act 

1 . Its main provisions 

2. Powers of the Commission 

3. Why discriminations were prohibited 

4. Other results of the act 

5. The defects 

III. Later legislation 

1. Act of 1903 

2. Act of 1906 

3. Act of 1910 

4. Importance of regulation 

IV. Conclusions concerning production 

1. Retrogressive societies 

2. Static societies 

3. Dynamic societies 

The Early Situation. — The Constitutional Convention of 
Power of 1787 gave the national government the follow- 
Congress: -j^g power ovcr commerce, — " Congress shall 
have power to regulate commerce with foreign nations, and 
among the several states, and with the Indian tribes." 



Regulation of Transportation 199 

The necessity of giving the central government some power 
over interstate commerce was one of the leading reasons 
for framing a new constitution. The conflicting interests 
that resulted from giving the individual states ^^^ ^^^ 
control over commerce proved conclusively, power was 
during the regime of the Articles of Confedera- '^'^^"^ ' 
tion, that some federal regulation of commerce was abso- 
lutely necessary. Therefore, when the new constitution was 
drawn up, Congress was given exclusive power to regulate 
interstate commerce. 

This new power of Congress was, of course, at first applied 
to the regulation of water transportation between different 
states, since water (aside from roads) was the only general 
means of transporting goods and persons from How first 
place to place. But with the impetus given to ^PP^^^^- 
railroad construction in the epoch following the Civil War, 
the regulation, not of water, but of land transportation 
became the absorbing problem. 

At first, the railroad was encouraged because it proved a 
blessing to newly developing communities. Cities and 
states vied with one another in buying railroad Growth of 
securities, in granting immunity from taxation, „ 
and in affording every inducement for railroad favored. 
construction. To these growing communities, the railroad 
afforded the opportunity to ship out the commodities which 
they produced, and to bring in the goods which they needed. 

This enthusiasm was, however, short-lived. The railroads 
developed with even greater rapidity than had been antici- 
pated; and, with their development, came an increase in 
monopoly power upon which railroad enthusiasts jp^^^ ^^i^ 
had not counted. To be sure, the railroads had '^^^^'' *"• 
their advantages ; but the extortionate rates and the discrim- 



200 Elements of Economics 

inations between shippers and towns more than offset 
the increased commercial facilities which the railroads 
afforded. 

Consequently a storm of indignant protest was directed 
against railroad activities. Instead of encouragement, they 
now received strong condemnation. By 1870, the cry 
j,^ against extortionate rates was common in all parts 

changed of the country, but particularly in the agricul- 
tural states of the newly developing Middle 
West. Stringent state laws were passed, but since the rail- 
roads were engaged in interstate business, they well knew 
that attempts of individual states to regulate their activities 
would prove ineffectual. Some form of federal regulation 
therefore became imperative. 

The Interstate Commerce Act. — In 1887 this situation 
culminated in the passage of the famous Interstate Com- 
merce Act, which was directed at interstate passenger and 
freight traffic carried by railroad or by railroad and water. 
This Act of 1887 includes five main provisions : (i) unrea- 
sonable or extortionate rates were prohibited ; (2) discrimi- 
nations between persons, places, and commodities were made 
Main illegal ; (3) fares and rates were to be made pub- 

provisions. jj^^ ^.^^ ^ ten-day notice was to precede any ad- 
vance, and a three-day notice any reduction, in rates ; 
(4) the act made it unlawful for a common carrier to charge 
or receive a greater rate in the aggregate for transporting 
passengers or freight under substantially similar circum- 
stances and conditions, for a shorter than for a longer 
distance, over the same line, in the same direction, the 
shorter being included within the longer distance ; (5) pool- 
ing transactions between railroads were prohibited. 

In order to enforce this law, a Commission consisting of 



Regulation of Transportation 201 

five members, appointed by the President with the consent of 
the Senate, was created. Subsequently the number of 
commissioners was increased to seven and the term of office 
fijxed at seven years. The Commission was empowered 
to investigate rates and alleged discriminations, commis- 
and, where necessary, to bring suit before the sion's 
courts. Orders issued by the commission were ^°^®'^" 
not binding, should the common carrier, against whom the 
orders were issued, choose to appeal to the courts. Where 
an appeal was taken, the commission and the carrier went 
through the regular process of suing and being sued and the 
decision of the court was final. 

The provision regarding unreasonable and extortionate 
rates was based upon the English common law against 
extortion. The discriminations between persons, places, 
and commodities had grown up with the railroad industry. 
By charging lower rates to one shipper than to another, the 
railroad determined which of the two should Why dis- 
remain in business; by giving more favorable ^ons'^ere 
rates to one town than to another, the railroad prohibited, 
determined which town should advance commercially; and 
by arranging the rates of two commodities, such as flour and 
wheat, the railroad determined whether wheat should be 
shipped from the wheat fields to Minneapolis and there 
ground into flour, or, whether it should be shipped from the 
wheat fields to the flour mills of the Eastern coast. In any 
one of these cases, the railroad was an arbiter possessed of 
most despotic power. Had it proved a benevolent despot, 
all might have been well; but, unfortunately, the use made 
of this power was in many cases disastrous to the parties 
concerned. 

The pubHcation of rates required by the new law gave all 



202 Elements of Economics 

an opportunity to secure the same terms from the railroads; 
other while the " long and short haul " clause was aimed 

results. against the abuse of granting a rate, from one 

city to the next city, lower than the rate between an inter- 
mediate small town and one of the cities in question. In 
an attempt to stimulate competition, pooling was prohibited. 
This last provision regarding pooling was perhaps the 
most impossible from an economic standpoint. Since so 
many restrictions had been imposed upon them, pooling 
a.,. J ^ X seemed to be all that was left to the railroads. 

The defects. 

Being deprived of this, they were forced into 
combination. Another defect was the limited power given 
to the Interstate Commerce Commission. To remedy this, 
subsequent legislation was enacted. In all the subsequent 
acts, however, the principles underlying the original law 
have been generally maintained. 

Later Legislation. — In 1890, the Sherman Anti-Trust 
Law was passed. Judicial decisions, however, have been 
responsible for applying this law in certain limited respects 
to the railroads. The act of 1903, known as the Elkins Law, 
increased the effectiveness of the Commission by making a 
corporation as well as its agent liable to prosecution; by 
increasing the penalties imposed under the origi- 
nal Interstate Commerce Act; by permitting 
the Commerce Commission to secure injunctions from the 
United States Circuit Courts; and by directing the Attor- 
ney General to prosecute under the act. This law expedited 
the work of the Commission by permitting an appeal, in 
interstate commerce cases, to be made more directly to the 
Supreme Court, 

A law passed in 1906 increased the administrative power 
of the Commission by permitting it to revise railway rates. 



Regulation of Transportation 203 

Up to that time, the Commission could only declare that a 

certain rate was unreasonable. Under the new law, it 

might state what rate was reasonable by fixing . 

° ... . Act of 1906. 

a maximum. In addition, its authority was 

extended to all express, sleeping car, and pipe line companies 
doing an interstate business. The law made further provi- 
sions which enabled the Commission to secure uniform 
accounting. 

In 1 910 additional railroad legislation created a special 
Commerce Court in which railroad cases are to be decided. 
Frequently, considerable friction prevailed between the reg- 
ular courts of justice and the Interstate Commerce Commis- 
sion; and the latter body, which had no status as a . 

' -^ Act of 1910. 

court, was subject to petty annoyances and delays. 

The new law hopes to increase the facility with which the 

Interstate Comme'rce Commission may transact its business. 

Transportation agencies are in such a monopolistic posi- 
tion that they can practically determine the welfare of indi- 
viduals, of communities, and of industries. Since importance 
it is undesirable that any such great power ofreguia- 
should rest uncontrolled in the hands of private 
individuals who are unaccountable to the public, legislation 
has been freely passed in the effort to regulate individual 
control of transportation facilities. 

Conclusions concerning Production. — We have now 
concluded the discussion of some of the problems arising 
from the production of wealth. Land, labor, and capital 
are all necessary to production, and in so far as they are 
rendered efficient will the productive machinery of society 
be on an efficiency basis. One of three things may hap- 
pen to a productive society, — it may retrograde, remain 
stationary, or advance. 



204 Elements of Economics 

Even while population is on the increase, the other factors 
in production, land and capital, may decrease. Through 
Retro- -^^^^ ^^ l^nd. or through soil exhaustion, natural 

gressive resources may be depleted; and capital or 

societies 

surplus wealth may be destroyed or wasted. As 
a consequence, the production of wealth gradually decreases 
and human wants remain largely unsatisfied. When this 
condition of affairs exists throughout the whole nation, so- 
ciety becomes retrogressive. 

In the second case a society may be stationary. For 
centuries, perhaps, the natural method of utilizing resources 
static and capital may have remained the same. Old 

societies. customs and traditions may regulate methods of 
production, thus successfully preventing any forward move- 
ment. Labor efficiency is not increased, and production 
does not increase. 

Still another possibility is open to society. A community 
endowed with natural resources, an efficient labor force, and 
Dynamic an abundance of capital or surplus wealth may 
societies. progress rapidly in the production of wealth and 
make possible an expansion of the. higher wants of man. 
Such a dynamic civilization presents infinite possibilities 
for individual prosperity and social welfare. Our study of 
production in the United States shows conclusively the 
d3niamic, progressive character of American civilization. 



TOPICS FOR CLASS DISCUSSION 

1. Why does the question of the control of the railroads in the 
interest of the public present especial difficulties in America ? 

2. Has the government built and operated railroads successfully 
in any country ? 



Regulation of Transportation 205 

3. Do you think the United States government should own the 
railroads in this country now ? 

4. Who is responsible for the present large number of railroad 
accidents, the railroad, the public, or the employee ? 

5. Is federal control superior to state control of railroads? 

6. What causes. led to the passage of the Interstate Commerce 
Law? 

7. What were the leading advantages of the law ? 

8. In what respects was the law ineffectual ? 

9. How have the provisions of the original Act of 1887 been 
strengthened by later legislation ? 

10. What is the value of uniform accounting ? 

1 1 . Wh.a.t is pooling, and why was it made illegal ? 

12. Would all rates be reasonable and just if made on the basis of 
distance only ? 

13. Should the Interstate Commerce Commission have power to 
fix rates ? 

REFERENCES 

American Railway Transportation — E. R. Johnson. 
Railway Traffic and Rates — E. R. Johnson & G. G. Huebner. 
Federal Power over Carriers and Corporations — E. P. Prentice. 
Federal Regulation of Railway Rates — ■ A. N. Merritt. 



PART IV 
EXCHANGE OF WEALTH 

CHAPTER XXVI 
Value and Price 

I. Value 

1 . Nature of value : 

a. Its general meaning 
h. Its economic meaning: 
(i) It arises from utility 

(2) It involves scarcity 

(3) It may apply to useless things 
c. Forms of economic value 

2. Value in use 

3. Value in exchange: 
a. What it means 

h. How determined : 

(i) By marginal utility and social estimate 

(2) By supply and demand 

(3) An example 

II. Price 

1. What price is 

2. Difference between prices and values 

3. How price is determined : 

a. When competition is free 
h. When competition is not free 

Leaving now the subject of the production of wealth, 
we pass on to a brief consideration of some of the more im- 
portant problems connected with its exchange. Wealth 

206 



Value and Price 207 

would be of little value, if, after it had been produced, it 
were not transferred from one individual to another. It 
will readily be seen that the complex conditions of modern 
industrial Hfe, due to separation of employments and divi- 
sion of labor, make it impossible for one man to produce 
all the economic goods that he requires for his own consump- 
tion. The process by which he secures goods from others 
in return for his own goods is known, in economics, as the 
exchange of wealth. 

Value. — Goods would not be desired and exchanged for 
one another, unless they possessed value. In a popular 
sense, the term "value "is given a wide application. We 
speak of the value of an individual to a community its 
or of the value of an educational or of a religious ^ ' 

^ General 

system to society. In this sense, the term refers meaning. 
to the desirable qualities in the person or institution. In 
this manner we think of " personal values," " educational 
values," and " religious values " — each one of these phrases 
illustrating the general meaning of the term '' value " as 
used in everyday life. 

In economics, however, the term " value " has a special sig- 
nificance and arises primarily from the utiHty of economic 
goods. It will be remembered that " wants " are Economic 
the desires which individuals have for economic ^'*«*"«ws- 
goods. Utility is the want-satisfying quality of a good. 
Therefore any economic good possessing utiHty has, in con- 
sequence, economic value. 

But not all goods are economic; some are free. Occasion- 
ally things are so plentiful that, although they have utiKty, 
they do not possess value in the economic sense. For 
example, water, a free gift of nature, may or may not have 
economic value. Frequently it has not because it is not an 



2o8 Elements of Economics 

economic good, — no one would give something upon which 
he had spent time and effort in exchange for it. But, to a 
man adrift on the South Pacific, the value of drinking water 
would be inestimable, — he would give anything in ex- 
change for it. Thus in addition to utility, scarcity is neces- 
sary to economic value. 

It has already been pointed out that utility is not synony- 
mous with usefulness. Utility is simply the quality in an 
economic good which satisfies a want. Now, if an individual 
wants something that is not useful, this useless thing will 
possess utiHty. A diamond necklace or a quart of whisky 
may therefore posssess as much utiHty, and consequently 
value, as a well-furnished house or a nourishing diet. We 
may, therefore, conclude that economic value is the worth, 
without any necessary regard to the usefulness, that is 
attached to economic goods. 

If now we stop to consider for a moment, we shall see 
that this worth may be estimated either by the individual 
for his own special use, or by the whole group for purposes 
Forms of of exchange. This difference in the methods of 
value. estimating the worth of economic goods gives rise 

to two forms of economic value : value in use and value in 
exchange. 

Value in use is purely subjective; that is, it is simply an 
individual estimate of the worth of a given commodity. 
One individual may value the utility of a certain economic 
good far more highly than would another individual. In 
Value in this determination of value, personal peculiarities 
"^®* play a large part. For example, a silver spoon 

that has become an heirloom may satisfy such an intense 
want in an individual that he will value it far beyond its 
intrinsic worth. This individual valuation of the spoon is 



Value and Price 209 

clearly not a measure of its general or social value. While 
this is an exaggerated case, nevertheless, it is perfectly 
true that individual valuations cannot be just estimates 
of values put upon goods by society as a whole. Therefore, 
economics is concerned primarily with the second kind of 
value, — value in exchange. 

Value in exchange is a social valuation placed upon an 
economic good by a number of persons. Of course, a good 
must have value in use before it can have value in exchange. 
But, in determining value in exchange, the good value in 
is looked upon, not from the standpoint of its exchange: 
utility to a single individual, but from the point ^^"^"^• 
of view of its worth to a whole group of people. Thus, 
value in exchange is the social estimate of the general worth 
of an economic good and represents the " power of a good to 
command other goods in exchange for itself." 

In determining this exchange value of a commodity, its 
utility naturally plays an important part. But utility, 
itself, is variable. In discussing this subject under the head 
of consumption, we saw that to the tired traveler the 
utility of the first apple is much greater than the How deter- 
utility of the third apple; and that, in consum- »^"^«<^- 
ing apples, he soon reaches a stage where the utiHty is so 
low that he desires no more. This lowest utiHty of the apple 
is called its marginal utility, and it is upon this marginal 
utility that value in exchange depends, because no one will 
give more for apples than an amount representing the 
satisfaction which he expects to derive from the last apple 
which he consumes. Furthermore, it is not the marginal 
utihty of a commodity to a single individual that determines 
its exchange value ; but it is its marginal utility to a whole 
community that is the measure of this value. Thus, ex- 



2IO Elements of Economics 

change value depends upon the estimate that society places 
on marginal utilities. 

In determining exchange value there is still another point 
that must not be overlooked. The value of an economic 
good varies with the relation of supply to demand. This, 
however, is only another way of saying that it depends upon 
marginal utihty, because an increase in the supply of a com- 
modity means a decrease in its marginal utility; and this, 
in turn, means a fall in value. On the other hand, a decrease 
in the supply of a good means an increase in its marginal 
utility, and a corresponding rise in value. From this 
standpoint, therefore, the amount of economic goods 
(supply) contrasted with the intensity and prevalence of 
wants (demand) determines value in exchange. 

For example, if the demand remains the same and there is 
an increase in the supply of turkeys, their marginal utility 
will decline and their. exchange value fall. But if, with the 
approach of Christmas, the demand for turkeys increases and 
the supply remains stationary, the marginal utility of turkey 
will become greater and the exchange value higher. This 
relation between supply or goods, on the one hand, and de- 
mand or wants, on the other, must always be reckoned with. 

Price. — Price is exchange value expressed in terms of 
money. When, for example, we wish to express the exchange 
value of some commodity, such as a pear, we do so in terms 
of some other commodity which is used as a standard of 
measuring all values. We do not say that the pear is worth 
What price two apples, but that the pear is worth two cents; 
*®* because money, not apples, is the standard by 

which all economic values are measured. Money thus be- 
comes a common denominator of value, and prices are ex- 
pressed in terms of this commodity. 



Value and Price 211 

It will be observed that we have said that money is a 
commodity, exactly like pears or apples. This is true, 
because money is merely some form of metal which is as 
much an economic good as oil or coal. In the United States, 
it represents gold. Now since gold is a commod- Difference 
ity, it is subject to the same law of value as any prids and 
other commodity. That is, if its supply increases values, 
in a greater proportion than the demand, its value will 
decrease correspondingly. Under these circumstances, 
therefore, instead of pears being worth two cents, they may 
now be worth three cents; and the prices of all other goods 
will rise similarly, because the value of gold (or money) has 
fallen. Conversely, if the supply of gold diminishes as com- 
pared with other goods, the prices of commodities will fall 
because the value of gold has risen. Consequently, a general 
rise or a general fall of prices is possible. On the other 
hand, there can be no general rise or general fall of values, 
because exchange value represents the purchasing power of 
a commodity; that is, a relation between two commodities. 
If, therefore, the value of one of these goods rises, the value 
of the other must fall. If a pear formerly exchanged for 
two apples, and now exchanges for three, the value of the 
one has increased at the expense of the other. Therefore, 
there can be no general rise or fall in values. 

Under conditions of free competition, buyers and sellers 
meet on a common ground — the market place — and there 
determine price by deciding as to the value of 
commodities. The value agreed upon is the determined: 
price, and it is expressed in terms of money. The Whencompe- 

'- ^ ' ^ -^ tttion IS free. 

price will depend upon the law of supply and de- 

piand governing value. The seller will look at the problem 

largely from the standpoint of production, and the buyer 



212 Elements oj Economics 

from the standpoint of consumption. This method of deter- 
mining price is still in vogue, to-day, in backward and rural 
communities. In fact, even in some civilized European 
countries, such as Greece and Italy, " bargaining " is still 
resorted to as a method of determining prices. Usually, 
however, in large modern societies, the one price system 
has been adopted. That is, the seller estimates the value 
of the good to the . community in terms of price. If his 
estimate is correct or nearly so, he sells the commodity ; if 
not, he changes the price to conform to the social estimate. 
Thus, price represents the point at which the seller and the 
buyer meet in their estimate of value. 

From this discussion we have seen how price would be 
determined normally. On the one hand, among producers 
there would be free competition, and, on the other, among 
consumers there would be wants of varying degrees of in- 
When compe- density ; while the law of supply and demand 
titionisnot would form the backbone of the whole process. 
■^^^^' But conditions are not always as here depicted. 

In fact, in modern industrial society, conditions of produc- 
tion are continually changing. Competition gives way to 
monopoly, and cost of production plays a diminishing part 
in determining prices. Consequently, in this absence of 
competition the monopolist fixes the price at a point which 
affords him the greatest monopoly profit. 



TOPICS FOR CLASS DISCUSSION 

1 . Does every good possess utility ? Is everything which pos- 
sesses utility a good ? 

2. Have the following utility: whisky, a gambler's pack of cards, 
clothes of antiquated fashion, opium, grand opera, air ? 



Value and Price 213 

3. If wealth increases, will there be greater well-being? What is 
the relation of wealth to well-being ? 

4. Is an encyclopedia wealth ? Among Indians ? 

5. "Whisky is not wealth. It has no permanent value for 
society." In what sense is the term " value " used ? 

6. A mercantile establishment advertises "the best values in the 
city." What is meant here by value ? 

7. Could a thing have value unless it was desired ? Unless it was 
scarce ? 

8. Draw up a sentence in which value is used in the sense in which 
the economist uses it. 

9. Would a bag of gold have value to a shipwrecked sailor on a 
rocky and deserted island ? Would a loaf of bread ? 

10. What is "price" ? 

11. What is the importance of the idea of price to society ? 

12. Explain the relation between value and price. 

REFERENCES 

Introduction to Economics — H. R. Seager. 
Principles of Economics — E. R. A. Seligman. 
Progress and Poverty — Henry George. 
Principles of Economics — F. A. Fetter. 
Principles of Economics — Alfred Marshall.. 



CHAPTER XXVII 

Price and Monopoly 

I. Monopoly power 

1. How measured 

2. How limited 

3. Size not essential 

II. Kinds of monopolies 

1. Industrial monopolies : 
a. Created by law : 

(i) Through control of natural resources 
(2) Through patents and copyrights 

h. Created by organization 

c. Created by both 

2. Franchise monopolies : 
a. Transportation : 

(i) Railroads 
(2) Electric traction 
h. Power and light 

3. Labor monopolies : 

a. Personal monopoly 
h. Organization monopoly 

4. Public monopolies 

5. Conclusion 

Monopoly Power. — At present, monopoly is one of the 
chief elements in fixing price. Popularly, the term "mo- 
nopoly " is applied to any large industrial organization. 
How Put from an economic standpoint, an organiza- 

measured. ^Jqj^ jg ^ monopoly only when, through crushing 
competition and controlling output, it is in a position to 

214 



Price and Monopoly 215 

raise prices above a competitive level. In other words, a 
monopoly is an organization with the power to fix price 
above a competitive level. The only real measure of the 
existence of monopoly is its price-fixing power. 

Observe that while price-fixing capacity is the test of 
monopoly, it does not necessarily follow that the monopoly 
can fix any price that it chooses. For example, if a com- 
pany had a monopoly of iron ore and fixed the price at a 
prohibitive figure, industry would substitute How 
cement for iron to such an extent that either ii°^ted. 
the price would not be maintained, or, if it were maintained, 
the product would remain unsold. Thus the power of the 
consumer to substitute one commodity for another limits 
the power of monopoly to fix any price it might desire. 

This power to fix price which determines monopoly may 
relate to the production of a commodity on a very large 
scale or on a very small scale. For example, the old Stand- 
ard Oil Company unquestionably had monopoly power since 
it had the power to fix the price of petroleum and petroleum 
products above a competitive level. The same thing is 
true to-day of the manufacturers of plate glass and of the 
manufacturers of print paper. These businesses are very 
large and the products in which they deal are widely used 
and of great value. On the other hand, a manufacturing 
company may be engaged in the production of articles that 
are used by only a few people, and its possibilities of growth 
may thus be extremely limited. This is the case, size not 
for example, with the manufacturers of psycho- essential, 
logical instruments. But even here, there is monopoly 
power. In fact, the demand for these instruments is so 
small that those who make them charge for them prices 
which are out of all proportion to their cost of production. 



2i6 Elements of Economics 

In the case of glass and paper, the monopoly power is exer- 
cised to a limited degree ; in the case of psychological 
appliances, the monopoly power is very great, and the 
monopoly price far exceeds the competitive one. 

Kinds of Monopolies. — Monopolies may be divided into 
four groups : (i) industrial monopolies, (2) franchise 
monopolies, (3) labor monopolies, and (4) public monopolies. 
Industrial Industrial monopolies may be subdivided into 
monopolies : three classes, — those created by law, those 
created by organization, and those created by both law and 
organization. 

Industrial monopoHes are created primarily by law. 
They base their monopoly power on the control of natural 
resources, and this control is made possible only through 
existing forms of property law. Thus, the control of nat- 
ural resources, sanctioned by law, is characteristic of 
Created by most industrial monopolies. The development of 
law. modern industry has taught the manufacturer 

that his highest effectiveness can be maintained only when 
he has control of all the processes of production, from the 
raw material in the earth to the finished product ready for 
shipment. Such a monopoly control of resources is the 
most effective method of preventing competition because 
the supply of natural resources is limited and the demand for 
them is increasing. The International Harvester Company, 
which controls the forests from which it cuts the timber and 
the mines from which it digs the iron and coal for the manu- 
facture of its machinery, is typical of a great group of inte- 
grated industries. Through natural resource monopoly, 
the great industrial corporations are enabled to fix monopoly 
prices. 

Patents and copyrights constitute the second element in 



Price and Monopoly 217 

maintaining industrial monopolies created by law. Al- 
though less permanent than the monopoly of natural re- 
sources, patents and copyrights, while they exist, are more 
absolute. While there are natural resources of many kinds 
in different parts of the country, a patent once secured 
gives to the owner sole right for many years to manufacture 
that particular article. The same thing holds true of copy- 
rights, trade-marks, patented processes, and the like. The 
bread formulas of the great baking companies, the cigar 
labels and trade-marks of the cigar manufacturers, the 
patented processes for making paint and other similar 
products, are all illustrations of a monopoly power based 
upon this form of legal control. 

On the other hand, organization may be the primary 
factor in developing an industrial monopoly. The American 
Ice Company, for example, is dealing in a product which may 
be secured almost anywhere in the northern part Created by 
of the United States; yet it is able, in certain organization. 
cities, to charge a monopoly price because it controls the 
machinery of ice delivery in those places. In the same way, 
largely through the control of the retail tobacco business', 
the American Tobacco Company was enabled for many 
years to secure monopoly prices. 

In most of the industrial monopolies, however, both law 
and organization play a part. The United States Steel 
Corporation depends upon its natural resources, upon its 
formulas, and upon its effective business organization. 
The same thing is true of the International Rub- created by 
ber Company, and of a number of other large '^"^''■ 
American business organizations which have been able to 
keep their prices above a competitive level. 

The second form of monopoly, a monopoly through fran- 



2i8 Elements of Economics 

chise, is absolute. If the franchise is perpetual, the monop- 
oly is likewise perpetual. Even though provisions are made 
Franchise in franchises to Hmit the prices which shall be 
monopolies: charged for services, monopoly power still exists 
because the corporation may fix the price above a competi- 
tive level. This kind of monopoly usually grants the privi- 
lege of furnishing transportation, power, or light. 

The greatest form of franchise monopoly is the railroad. 
Enough has been said to show that railroads are essentially 
monopolies, and to show that, because of their right of 
eminent domain and their control over the district through 
Transpor- which they pass, they are enabled to fix monopoly 
taHon. prices, — exacting " all that the traffic will bear.'' 

There is perhaps no better illustration in the country of the 
fixing of monopoly price than that furnished by the railroad 
industry. No book is published on the subject of railroad 
transportation which does not emphasize the thought that 
the predominant factor affecting the price of railroad trans- 
portation, in the absence of some form of competition, is 
the price that people are willing to pay. 

Suburban electric trolley lines are, assuming a position of 
greater importance in the group of franchise monopolies. 
Therefore, as interurban transportation develops, the fran- 
chises secured by the present interurban companies will 
give them almost as great monopoly power as that now 
possessed by the railroads. It is in cities, however, that 
the franchise monopoly of transportation assumes very great 
importance. Trolley lines, subways, and 'bus companies 
possess great monopoly power. For example, in a city of 
one million and a half, the competitive cost of transportation 
perhaps does not exceed two and one half cents per pas- 
senger, yet the actual price paid by the passenger is usually 



Price and Monopoly 219 

from four to five cents. This difference between the price 
paid and the competitive price represents the extent of the 
monopoly power. 

The other leading form of municipal franchise monopoly 
— the monopoly over power and light — is chiefly seen in 
the control of electricity and gas. Water power is being 
gradually converted into electric power, which is power and 
transported sometimes as far as two hundred and '^^^^• 
fifty miles. The present widespread use of coal prevents 
the power companies from exercising their real monopoly 
power, but in the course of the next century the diminution 
of the coal supply will increase the monopoly of the holders 
of water power franchises. Light, too, is often furnished 
through franchise monopolies. They carry on these busi- 
nesses under franchises of long duration by means of which 
they are enabled to charge prices that are considerably higher 
than they would be under conditions of pure competition. 

Labor monopolies may be in the form of personal mo- 
nopoly or of a monopoly of organization. In both cases, 
they aim to fix the price of labor. Personal monopoly, 
which is the result of special ability or training, Labor 
is in very distinct contrast to the monopoly of \{qs:^° 
organization which is the result of cooperative Personal. 
effort. Personal monopoly demands a high salary for the 
individual, while monopoly of organization secures stand- 
ardized wages and proper working conditions for the 
members of the group. 

The trade-union principle is necessarily monopolistic ; that 
is, it attempts to fix wages without regard to competition. 
The object of the union is so to organize and control the 
supply of labor that competition will be impossible. Thus, 
a price will be fixed which will represent the monopoly power 



220 Elements of Economics 

of the organization rather than the productive capacity of 
the individual members of the union or the competitive wage 
„ . which would be fixed if each union member was 

Organiza- 
tion mo- bargaining individually for himself. As in the 

^"^^ ^' case of railroads, the principle which dominates 

union activity is "all that the traffic will bear." For 
example, the building trades-unions, which have a great 
monopoly power, command a very much higher wage than 
some of the more skilled operations in the tailoring trades 
where unions are weak and monopoly power small. In 
the first case, the supply of laborers is somewhat limited ; 
in the second case, hordes of immigrants overload the mar- 
ket and make a competitive wage possible. Since labor 
has been organized on national and international lines, it 
has greatly enlarged its monopoly power and increased the 
possibility of controlHng its price. 

Public monopolies may be either municipal, state, or 
national. The public municipal monopolies deal with 
transportation, water, light, the control of sanitation and 
health, and provision for police and fire protection. The 
state monopolies are monopolies of license fees, incorpora- 
tion fees, charter granting, and the like. The national mo- 
Pubiic nopolies include the carrying of mails, the printing 

monopolies. qJ documents, the building of irrigation dams, 
and other activities which the government may and does 
assume. To be sure, in these monopolies, prices necessarily 
vary from the competitive rate. In fact, the prices for 
some government services are considerably below the com- 
petitive rate. The essential factor in monopoly is, there- 
fore, not the fixing of a high price through monopoly power, 
but the fixing of any price through monopoly power. 

The number of ways in which monopoly power is expressed 



Price and Monopoly 221 

in monopoly price is constantly increasing; and the prob- 
lem of monopoly is, therefore, of constantly greater concern 
to the modern state. In a monopoly regime, the The con- 
ordinary laws of price are largely suspended, ci^^sion. 
The usual laws of demand and supply are, for the time 
being, thrown into the background ; and, in the presence of 
monopoly, a peculiar condition of affairs exists whereby price 
is determined, not so much through competition, as through 
some form of monopoly power. 

TOPICS FOR CLASS DISCUSSION 

1. Define monopoly. 

2. Name the different kinds of monopoly. 

3. Mention some monopolies of which you have knowledge, and 
explain what monopoly advantages they enjoy. 

4. How is monopoly price determined ? 

5. Explain the difference between monopoly price and competitive 
price. 

6. State the law of monopoly price. 

7. What advantages are claimed for public ownership of natural 
monopolies ? 

8. Should the government attempt to regiilate price when a mo- 
nopoly is shown to exist ? 

9. Is it desirable in the government to allow a monopoly to charge 
different net prices for the same commodity ? 

10. What relation should, in the interest of public welfare, be estab- 
lished between monopoly and price ? 

REFERENCES 

Monopolies and Trusts — R. T. Ely. 
The Problem of Monopoly — J. B. Clark. 
Principles of Economics — F. A. Fetter. 
Introduction to Economics — H. R. Seager. 
The Theory of Prosperity — S, N. Patten. 



CHAPTER XXVIII 

Instruments of Exchange 

I. Money 

1. Primitive method of exchange : 

a. Barter 

b. Its difficulties 

2. Modern method of exchange : 

a. Necessity of money 

b. Uses of money 

c. Characteristics of money 

d. Kinds of money : 
(i) Early forms 

(2) Metallic money 

(3) Paper money 

II. Credit 

1. Its meaning 

2. Kinds of credit: 

a. Book credit 

b. Promissory notes 

c. Checks 

d. Bills of exchange 

e. Banking operations : 
(i) Issue of notes 

(2) Deposit of money 

(3) Discount of notes 

3. Advantages of credit 

4. Its preservation 

Money. — In primitive communities, exchange is accom- 
plished, without the use of money, by means of barter. For 
example, if to-day you were to take a trip to Alaska and 



Instruments of Exchange 223 

attempt to buy frozen fish from a native, you would be 
compelled to give gold dust in exchange for the fish. If the 
fisher woman demanded a little more than you were willing 
to give for a particular fish, you would add to primitive 
the gold dust, grain by grain, until you finally exchange : 
reached a quantity which satisfied both. If you °'^^^^' 
desired an additional fish, you would be compelled to go 
through exactly the same process, — the amount of gold 
dust varying each time with the size and character of the 
fish. 

In the above illustration the process of barter was rather 
easily accomplished. If one person has gold dust and an- 
other person has fish and both wish to exchange, some sort 
of transfer can be effected. But suppose one man has bear- 
skins and another has fish, and neither desires what the 
other has, the problem of exchange becomes more Difficulties 
complicated. Barter is inadequate because it is "^ barter. 
extremely difficult to find two persons each having exactly 
what the other desires, and each willing to part with his 
possession; and, even when these conditions have been 
met, it is still necessary that an agreement be reached as to 
the relative values of the goods under consideration. 

Consequently, in modern society, some other method of 
exchange becomes imperative. No community in which 
the exchange of commodities is a difficult and cumbersome 
process can advance to any considerable degree Modem 

6XCll&.Il£f6 * 

of civiKzation. A simple and effective instru- „ 

^ Money 

ment of exchange is as necessary to the progress necessary. 
and welfare of mankind as are improvements in the process 
of production itself. Therefore, man makes use of money 
as a convenient means of exchanging one commodity for 
another. Thus, money is not an end in itself, but merely a 



224 Elements of Economics 

means of securing what is wanted through the process of 
exchange. 

Money, therefore, serves two useful purposes. In the 
first place, it is a common measure of value, serving as a 
medium for the expression of values in terms of price. 
The employment of money as a common denominator of 
value gives rise to its second function as a medium of 
Uses of exchange. By means of it, the shoemaker 
money. exchangcs his shoes for food; the tailor, his 

clothes for furniture ; the steel manufacturer, his steel for a 
palatial residence ; in short, by the use of money, every one 
exchanges his particular commodity for what he requires 
to sustain and enjoy hfe. 

If money is to be used to measure value, it must, of course, 
itself possess value ; and, furthermore, this value must be 
Character- generally recognized throughout the community. 
istics of In addition to this characteristic, money must 
money. ^^^^ |_^^ durable and of such small bulk as to be 

easily transferable. The needs of modern society demand 
that money possess these three characteristics. 

In primitive communities, many things were used as 
money which lacked one or more of these qualities. For 
example, Indian " wampum " was of no great value ; and 
Kinds of the Cattle used as money, centuries ago in 
money. Europc, would uot to-day be considered portable. 

In the same manner wheat, although having universal value, 
would not make good money because of its destructibility 
and great bulk. Therefore, men have employed some form 
of metal as money. In early societies, as in Sparta, iron 
was used ; and in other places copper was employed. 

To-day, however, gold and silver fill the requirements of 
money much more perfectly than any of the other metals. 



Instruments of Exchange 225 

Besides being valuable, portable, and durable, they are 
easily divisible into small parts, each one of which possesses 
considerable value. To facilitate the use of gold and silver 
as money and to standardize the value of the amounts used, 
the government takes gold and silver bullion and converts 
it into small coins. These coins are stamped by the govern- 
ment and their value is thus guaranteed. In the United 
States, for example, the dollar is invariably equal to 23.22 
grains of pure gold or 371.25 grains of pure silver. In 
each case, in order to make the coin more durable, alloy is 
added so that the " standard weight " of the gold dollar is 
25.8 grains, while that of the silver dollar is 412.50 grains. 
Thus, metalUc money is simply gold or silver (or some other 
metal) converted into a special form. Therefore, if money 
is plentiful, that is, if gold and silver are plentiful, its value 
decreases as would that of any other commodity. Since its 
value decreases, a particular coin is able to purchase less; 
and, therefore, there is a general rise in prices. On the 
other hand, should the supply of gold and silver decrease 
and money become scarce, its value would increase in pro- 
portion and there would be a resulting fall in prices. 

Metallic money is a great step beyond barter. It stand- 
ardizes values and removes the disadvantages connected 
with individual bargaining. On the other hand, metallic 
money has certain obvious disadvantages. It is bulky, 
clumsy to handle, and easily lost. These objections render 
metallic money less desirable than an advanced form of 
money known as convertible paper money, which is used 
side by side with metallic money in civilized societies. 
Paper money is a promise to pay, and, so long as this promise 
is kept, it is as good as metallic money. In fact, it has some 
advantages over metallic money. It is more easily trans- 

Q 



226 Elements of Economics 

ported, less bulky, and much more readily transferred from 
one individual to another. On the other hand, it is more 
easily debased. During the French Revolution, during the 
American Revolution, and in the Southern states during 
the Civil War, paper money was issued by the wagonload 
and became so debased that it required hundreds of dollars 
to buy ordinary commodities. Nevertheless, if paper 
money is issued and guaranteed by a wisely directed govern- 
ment, its advantages over metallic money are so great as to 
render it far more desirable. 

Credit. — Civilized communities make use of another 
instrument of exchange known as credit. Paper money is, 
indeed, a form of credit ; but to-day there are many other 
kinds of credit in use. In fact, so general has the use of 
credit become that many commercial transactions are carried 
on without the use of money at all. Credit, wherever it is 
employed, signifies confidence in business relations. The 
" charge and send " of the modern department store is one 
of the most widely known forms of credit. In a primitive 
community, because of the uncertainty of the 

Its meaning. 

future, one cannot buy goods without paying 
for them directly. In a modern stable community, however, 
it is perfectly possible to buy goods " on credit." Where a 
man's position is known, his ability to fulfill his financial 
obligations is so well understood that his promise to meet 
them at the proper time is accepted as the equivalent of 
actual payment. 

In modern business there are five kinds of credit that are 
Kinds of of particular interest : (i) book credit; (2) notes; 
credit : (^^^ checks ; (4) bills of exchange ; and (5) bank- 

ing operations. 

To-day, book credit is in general use throughout the United 



Instruments of Exchange 227 

States, being characteristic of the small business operations 
of the corner grocery store as well as of the great comrnercial 
transactions of the modern department store. In the pur- 
chase of groceries, for example, you may buy goods for a 
whole month without paying a single cent ; and, at the end 
of that time, the grocer sends you a bill. During the 
month, therefore, you have been receiving goods 

' ' -^ ^ ^ Book credit. 

on book credit because the grocer had confidence 
in your ability to pay him. Likewise, in a great depart- 
ment store, hundreds of dollars' worth of goods are trans- 
ferred from one person to another without the direct pay- 
ment of money. 

Notes are promises to pay at the end of a specified time. 
For example, if a merchant is short of present funds but 
desires to make an immediate purchase of goods, he gives 
his note for sixty days in payment of the debt. He has not 
the money now, but expects to have it in the near Promissory 
future. The manufacturer of whom he buys the '^°^^^- 
goods has so much confidence in the merchant's abihty to 
pay at the end of the time specified in the note that his 
promise is taken instead of money. 

A check is an order on a bank to pay to a person money 
which he himself or another has on deposit in that bank. 
A lawyer, for example, wishing to pay his doctor's bill, does 
not give him actual money, but sends him a check for the 
required amount. The physician then takes this check to 
his own bank (which may or may not be the same 
as that of the lawyer) and either has it cashed or 
deposits it to his own credit. The lawyer does exactly the 
same thing when he receives a check from the physician in 
payment of professional services he has rendered. In case 
the lawyer and the doctor (and hundreds of others in Hke 



228 Elements of Economics 

positions) have accounts at different institutions, the banks 
meet together in a " clearing house " and there settle what- 
ever difference may exist between them by reason of the 
varying amount of their claims on each other. Through 
confidence in individuals and in banking institutions, the 
use of checks in business transactions has become a settled 
method of discharging financial obligations. 

Bills of exchange also greatly economize the use of money. 
Such a bill is a device whereby two individuals at a great 
distance from each other effect a payment of a debt without 
the transfer of money from one to the other. Suppose, for 
example, a New York importer buys goods to the value of 
$50,000 (or £10,000) from a London exporter ; and, at the 
Bills of same time, a New York exporter sells goods of 
exchange. ^j^g same valuc to a London importer. Listead 
of causing $50,000 to be transported twice across the At- 
lantic, the New York exporter, to whom money is due, sells 
to the importer in his city a bill of exchange for $50,000. 
This New York importer then indorses and sends this bill 
of exchange (which constitutes a claim on the London im- 
porter for £10,000) to the London exporter who, in turn, 
presents it to the importer in his own city and receives the 
£10,000 (or $50,000) due him. In this manner, by means of 
banking institutions and a bill of exchange, all four men have 
been satisfied without the necessity of transferring large 
sums of money across the water. 

In these transactions of credit it may readily be seen 
what an important part is played by the bank. In modern 
Banking socicty, the bank is a credit factory, and its 
operations, operations in turn depend upon the existence of 
confidence in business transactions. The issue and circula- 
tion of its notes show clearly the confidence of the public 



Instruments of Exchange 229 

in its operations. A bank note is simply a promise to pay 
based on the resources and credit of a banking institution. 
If the bank's resources are good, its notes circulate at par. 
Its standing in the community rests entirely upon the confi- 
dence which men place in its financial integrity. In the 
United States, national bank notes are issued with govern- 
ment bonds as a basis ; hence, their value is practically 
assured and no one hesitates to accept them. 

The existence of confidence in banking institutions is also 
seen in their function of deposit. People deposit money in 
the bank for the purpose of saving it, or for the purpose of 
drawing checks against it. In either case they have confi- 
dence in the bank. If they deposit for the purpose of sav- 
ing, the bank uses the money commercially. It makes 
loans to industrial enterprises, receives interest in return, 
and then pays to the depositor a part of the interest thus 
received for the money used in industry. Banks .accept 
check accounts because, by this means, they secure the 
use of surplus money. On the other hand, the depositor 
opens a check account in order to pay his bills through bank 
credits without the intervention of money transactions. 

Another leading function of banks is the discounting of 
notes, bills of exchange, and other forms of commercial 
paper. A merchant may have a note payable in sixty days 
and wish to realize credit on this note without delay. By 
taking it to the bank, he secures, in return for it, money or 
credit good immediately. Naturally, for this accommoda- 
tion he pays a discount, which is one of the chief sources of 
revenue to banking institutions. In a similar manner, bank- 
ing houses discount bills of exchange. 

From this brief description of credit and credit instru- 
ments, it is apparent that credit is one of the most impor- 



230 Elements of Economics 

tant factors in facilitating modern commercial transactions. 
The advantages of credit instruments may be summarized 
as follows : (i) they economize the use of precious metals; 
Advan- (2) ^'^^y ^^^^ labor in the transfer of goods; 

tages of (3) through credits in a savings bank, small 

credit. . ■, 1 • 1 1 

savings may be amassed m large sums and con- 
verted into capital ; (4) through banking institutions, large 
sums of money may be secured for commercial purposes in 
return for a promise, made under certain specifications, to 
pay back the loans. 

On the other hand, credit leads to extravagant living, 
stock watering, "high finance," and allows much specula- 
tion. Nevertheless it is one of the most effective tools in the 
hands of modern society. Its value is fundamental; its 
abuses incidental. Credit represents one of the great steps 
in the advance of commercial development. The urgent 
Its pre- demand at the present time is for its preserva- 
servation. ^j^j^ ^.^^ Safeguarding. Since credit is so essen- 
tial to modern welfare and prosperity, every possible device 
should be employed to insure its integrity. Stringent reg- 
ulations should be made and enforced in order to prevent its 
improper employment in "high finance." 



TOPICS FOR CLASS DISCUSSION 

1. Could the exchange system be as complex as it is to-day if we 
depended upon barter alone ? Would the productive process be as 
efficient ? 

2. Can you cite any cases of barter being used to-day ? 

3. What difficulties of a system of barter are overcome by the 
use of money ? 

4. Name the qualities desirable in money. 

5. Mention different things that have been used as money. 



Instruments of Exchange 231 

6. Would the following make good money: iron, wheat, diamonds, 
glass beads, seasheUs, beaver skins ? If not, why not ? 

7. Are there any of the functions of money which would not be 
satisfactorily performed by the commodities mentioned in the pre- 
ceding question ? 

8. Are there any respects in which gold is superior as money to 
the above-mentioned commodities ? If so, explain the superiority in 
each case. 

9. Why are copper and nickel used for coins ? 

10. What are the advantages of paper money ? Its dangers ? 

11. What different meanings has the word "credit"? In which 
sense is it most often used in economics ? 

12. What is a check ? A bill of exchange ? 

13. What effect does credit have upon the productiveness of capital ? 

14. What are the evils of credit ? 

15. How may these evils be remedied ? 

REFERENCES 

Funds and Their Uses — F. A. Cleveland. 
Money and Banking — W. A. Scott. 
]\Ioney and Currency — J. F. Johnson. 
Principles of Money — J. L. Laughlin. 



CHAPTER XXIX 

Modern Finance 

I. Evolution of modern finance 

1. Importance of funds 

2. How secured : 

a. In former days 

h. At the present time : 

(i) Through corporations 

(2) Through " trust finance" 

11. How companies are formed 

1. A slate company : 

a. The " promoter " : 

(i) His first steps 

(2) His later steps 
h. The company organized : 

(i) How accomplished 

(2) How stocks are '' floated " 

2. United States Steel Corporation: 
a. How formed 

h. Its capitalization 

III. Results of modern finance 

1. Chief advantages 

2. A great danger 

3. Other evils 

4. Conclusion 

Evolution of Finance. — The latest development of credit, 
as applied to industry, appears in the financing of great 
business concerns. Credit is intimately connected with 
modern finance because, by means of it, the business world 
is able to secure large sums of money with which to finance 

232 



Modern Finance 233 

its propositions. To carry on any business whatsoever, 
funds in some form are essential, since they may importance 
be exchanged for land, labor, and capital. The °* funds, 
procuring of these funds constitutes one of the chief duties 
of the business organizer. 

In the early part of the nineteenth century business was 
conducted largely on an individual or partner- jj^^ 
ship basis. One man, with a small amount of secured: 
capital, went into business for himself. Or, if ^'■^'■■^^■ 
he did not have sufficient funds, he went into partnership 
with two or three of his friends who entered into an agree- 
ment with him and helped in the business management. 

This simple method of securing funds proved inadequate, 
and was succeeded by the corporation, which possesses so 
many advantages over the partnership method that it has 
revolutionized the system of business finance. 

At present. 

In the first place, through the issue of stocks and 
bonds, enormous funds become available for industrial 
purposes. At the same time, according to the law of cor- 
porations, the liabihty of each shareholder is limited to the 
amount he has invested. Then, again, the corporation' 
continues as long as its charter permits. If one director 
dies, another is elected to fill his place. Finally, while a 
hundred thousand people may hold stock of a corporation, 
a small group of men manages its affairs efficiently. For all 
these reasons the corporation marks a great advance in the 
evolution of modern finance. 

The next step in this evolution of finance accompanies the 
development of that form of business organization known as 
the trust. Although the board of trustees (from which body 
we get the name " trust ") has been declared illegal, its 
essential feature — the absolute centralization of capital 



234 Elements of Economics 

and business control — still exists in some form of the hold- 
ing company. Instead of appointing a board of trustees 
which holds stock of other companies, the promoters of the 
trust organize a new corporation. Here is the opportunity 
of amassing colossal sums of capital and of having these 
enormous funds managed by central control. To bring 
about these results, questionable methods have often been 
employed and have given rise to the phrase " trust finance." 
But, although " trust finance " may be used for illegitimate 
purposes, it is by no means necessarily illegitimate in 
character. 

How Companies are Formed. — To realize more clearly 
the nature of this kind of finance, let us examine the usual 
method of organizing an industrial company. Compara- 
tively few people really understand the procedure involved 
in converting a business proposition into marketable securi- 
ties through the medium of modern finance. Suppose in a 
A slate region fifty miles square there is located a group 

company: ^f slate quarries capable of producing the only 
slate in the neighborhood. Here is a natural resource 
furnishing an excellent basis for a combination of interests 
and requiring only that sufficient funds be secured for its 
development. 

Looking over this field, the " promoter " — the man who 
organizes and directs combinations of capital — plans a 
definite proposition. After careful consideration of all 
aspects of the question, he concludes that it is possible to 
form a combination to control slate production in this 
The " pro- region. He first goes to the bankers who in the 
moter. •p^'si have assisted him in financing his enterprises, 

explains the situation to them, and asks for their coopera- 
tion. If they have confidence in the promoter and if the 



Modern Finance 235 

scheme sounds interesting, they agree, in the event of the 
proposition proving desirable, to render him any necessary 
financial assistance. 

Having thus secured his backing, the promoter proceeds 
into the slate region and goes from quarry to quarry buying 
up options. That is, he secures for perhaps one thousand 
dollars the right to purchase for a stated sum a slate quarry 
at any time before the end of two years. If the promotion 
is successful, the promoter returns after a few months to his 
banking house and states that he has secured options on all 
the properties. He also makes a report concerning their 
capacity, the quality of their product, the possibility of their 
development, and the prospect of effecting economies. 

If, at this stage, the proposition looks unfavorable, it is 
dropped. If, however, it seems feasible to organize a suc- 
cessful combination, a charter is applied for and the com- 
pany incorporated ; stocks and bonds are issued by it ; and 
the options on the various slate properties are taken up. 
Perhaps these stocks and bonds are given to the jj^^ ^^^_ 
owners of the slate quarries in return for their pany or- 
properties. It may be, however, that the owners ^'^"^^^ ' 
insist on cash payment. In this case, the stocks and bonds 
are taken by the banking house and " floated." This is 
done by the agents of the banking house traveling over the 
country, visiting financial institutions, trust companies, or 
individuals likely to buy such securities and attempting to 
sell those of the newly organized company. 

These securities may be listed on one or more stock ex- 
changes. In that case they are sold to the general public, 
if people choose to buy them in the usual way. By what- 
ever method the promoter and his banks proceed, however, 
the ultimate aim of the company is to unload the securities 



236 Elements of Economics 

on the public, organize the business on an efficient basis, 
and make it pay dividends on the securities issued. If the 
promoter has used good judgment and if the company is not 
overcapitahzed, the new corporation has a good chance of 
success. Confidence on the part of investors, however, is 
absolutely essential to the process of successful promotion. 

This description of the organization of a hypothetical 
company to control the slate business in a given locality 
has been paralleled a hundred times in the course of the 
last twenty years. The organization of the United States 
Steel Corporation was, in a large way, an almost exact dupli- 
cate of the slate quarry example, except that the proposition 
United ^° Consolidate the steel interests was most wel- 

states come to the steel manufacturers themselves, 

poration: Competition had been very severe. Numerous 
How small trusts had been formed. The Morgan 

forme . interests, well acquainted with this situation, 

undertook to organize a combination of all of the independ- 
ent producers. Gradually the principal companies were 
consolidated, with the exception of the Carnegie Steel Com- 
pany, which refused to combine. In reply to the trust's 
threats, Mr. Carnegie proposed to erect a steel plant on 
Lake Erie which would produce steel rails more cheaply 
than any plant the trust then owned. Eventually, however, 
the Carnegie plant was bought out at Carnegie's own price, 
about $350,000,000. 

At its inception, the steel trust was overcapitalized be- 
cause of the enormous prices which some of the consolidat- 
its capital- ing firms received for their plants, and because 
tzahon. q£ |-j^g great bonuses secured by the promoters. 

However, the reconstruction of the plant and the purchase 
of the Tennessee Coal and Iron Company established the 



Modern Finance 237 

trust on a strong basis. This, together with the reorgani- 
zation of steel manufacturing which the steel trust has re- 
cently effected, renders it very probable that at the present 
time the total capitalization of the trust (almost one billion 
and a half dollars) represents something like actual value. 

Results of Modern Finance. — The advantages of modern 
finance are twofold. In the first place, the corporation, as 
financed by the modern banker, gives the aggressive business 
man an opportunity to secure large funds of capital. At the 
same time, the small investor is enabled to invest chief ad- 
sums of capital in a large progressive business, and vantages, 
thus become a participant in a successful enterprise. Neither 
of these transactions would be possible without the institu- 
tion of credit. Stocks and bonds, which together form one 
of the most important kinds of credit instruments in modern 
industry, furnish a common basis for the small investor and 
the large industrial enterpriser. Of course, the savings 
bank may occasionally intervene between these two; but, 
nevertheless, they finally come together through the medium 
of securities. 

Financial methods, as employed by the holding company' 
of to-day, have wrought wonderful changes in our financial 
and industrial system. Fifty years ago, the Steel Trust 
would have been considered an impossibility because it was 
generally believed that no single business con- a great 
cern could finance and manage so large an enter- danger, 
prise. Gradually, however, men learned how to integrate 
individual industries. This was considered, and rightly so, 
a wonderful acliievement. It was followed, however, by 
the development of financial centralization which per- 
mitted one management to control several integrated indus- 
tries. By means of this financial control, it might be pos- 



238 Elements of Economics 

sible for effective power over all industrial enterprise to be 
centered in the hands of a half dozen financiers. 

Other evils are incident to the system of modern finance. 
Chief among these are overcapitalization, " stock water- 
ing," and public deception regarding the value of securities. 
All of these are related to each other, but the one most 
generally denounced is " stock watering." This results 
from the fact that the par value of the stock does not 
represent its real value. The difference between 

Other evils. ^ 

these two values is the " water " in the stock. 
It can readily be seen what injury is done to good business 
management when dividends are paid on an amount of 
wealth larger than that which is actually engaged in pro- 
ductive enterprise. Paper values are not real values. 

Every effort should be made to preserve the legitimate 
character of modern finance. Finance is a development of 
credit and depends upon credit for accomplishing its pur- 
pose. No sanction, therefore, should be given the methods 
of those financiers who by their misrepresentations serve to 
The con- Weaken public confidence. Their acts should be 
elusion. rigidly scrutinized and a sharp distinction drawn 
between legitimate and illegitimate financiering. Social 
welfare is largely dependent upon the maintenance of a high 
standard of integrity in the development of modern finan- 
cial methods, 

TOPICS FOR CLASS DISCUSSION 

1. What is the function of a promoter ? 

2. Explain the steps by which a trust is organized. 

3. What is meant by the "capitalization" of a trust ? 

4. On what basis is the amount of capitalization determined ? 

5. What is stock watering ? Why is it resorted to ? 

6. Does stock watering harm the public ? The investor ? 



Modern Finance 239 

7. Could large scale production be carried on without modern 
systems of financiering ? 

8. Explain the organization of the Steel Trust. Of the old Stand- 
ard OU Company. 

9. What principles of finance are illustrated by these two organi- 
zations ? 

10. What measures must be adopted to regulate financiering ? 

REFERENCES 

Trust Finance — E. S. Meade. 

Trusts, Pools, and Corporations — W. Z. Ripley. 

The Story of Iron and Steel — J. R. Smith. 

The History of the Standard Oil Company — I. M. Tarbell, 

The Trust Problem — J. W. Jenks. 



CHAPTER XXX 

Foreign Trade 

I. The underlying principle 

1. Why men trade 

2. How trade developed 

3. International trade : 

a. Its primary basis 

b. The disturbing factors : 
(i) Commercial expansion 
(2) Overproduction 

c. American foreign trade : ' 
(i) Chief exports 

(2) Chief imports 

11. General features of foreign trade 

1 . Its chief characteristics : 
a. World markets 

h. Standard prices 

c. Method of payment 

2. How it is restricted : 

a. Chief kinds of restrictions 
h. Purpose of protection 
c. The result accomplished 

Of the various problems that arise in a discussion of the 
exchange of wealth, none is more important than the trade 
relations of civilized communities. In fact, foreign trade 
is vitally connected with modern industrial life. 

The Underlying Principle. — It is perfectly obvious that, 
in the present stage of the world's economic development, 
an individual cannot produce a sufficient variety of economic 

240 



Foreign Trade 241 

goods to satisfy his manifold wants. This is an age of 
speciahzation in production and of minute subdivision in 
labor. For example, one man or a group of why men 
men produces nothing but woolen goods ; another ^^'^®- 
confines his attention exclusively to the production of food 
stuffs; while a third concentrates all his time and effort 
upon the construction of building materials. If each man, 
therefore, consumed only what he produced, many of his 
wants would remain unsatisfied. He must consequently 
trade with his fellow men and secure from them, in exchange 
for the results of his own labor, the commodities which 
they produce that are essential to his happiness. In modern 
communities, therefore, individual and social welfare is 
absolutely conditioned upon the free interchange of com- 
modities. 

Of course, in primitive societies, this problem of exchange 
was comparatively insignificant. Every individual pro- 
duced, in some fashion, all that was absolutely needed to 
sustain life, and his wants being few and undeveloped, he 
was not dependent upon the labor of his fellow man. To- 
day, however, the trade relations of society have developed 
to such an extent that nations war upon each other in order 
to secure the benefits accruing from wider trade How trade 
relationships. Beginning with insignificant lo- developed, 
cal exchanges, the sphere of trade gradually widened until 
it extended to a free interchange of commodities produced 
within the same country. Thus domestic trade was estab- 
Hshed. But as the facilities for transportation developed, 
a nation's trade expanded beyond the confines of its own 
borders until domestic trade was supplemented by foreign 
trade. In this way there was inaugurated international 
trade which now plays such an important part in the life 



242 Elements oj Economics 

of all great commercial nations. In fact, the existence of 
nations sometimes depends upon the preservation of their 
international trade. Should England, for example, at the 
present time be cut off from her trade connections with the 
rest of the world, her people would suffer severely from 
the curtailment of their food supply. 

The underlying economic principle of international trade 
arises primarily from the character of natural resources 
and from the fact that certain parts of the world are pecul- 
iarly fitted for the production of particular commodities. 
For example, coffee grows well in Brazil ; tea is cultivated 
in China ; and cotton is cheaply grown in the southern part 
of the United States. In a similar manner, Canada, the 
United States, South Africa, and Australia easily produce 
wheat; while northwestern Europe, by reason of its 
Interna- mineral deposits, is peculiarly suited to manu- 
tiona trade : f^cturing. Thus, each of these areas has a spe- 
mary basis, cialty for which it might well seem that nature 
intended it. This local fitness for production, due to favor- 
able physical conditions, is the primary basis for interna- 
tional trade. Even to-day, in spite of national prejudices, 
this principle of international exchange asserts itself. 

In addition to the influence of national solidarity, two 
other factors interfere with the full utilization of this physi- 
cal basis for international trade. In the first place, a com- 
mercially expanding nation with large resources and limited 
markets aims to secure additional trade in spite of the law of 
The disturb- local fitncss. For this reason, although north- 
tng factors, -western Europe is peculiarly suited to manufac- 
turing, many large American trusts enter European markets, 
and, notwithstanding the extra cost of transportation, sell 
their products there more cheaply than at home. In the 



Foreign Trade 243 

second place, surplus products are often " dumped " in a 
foreign market. That is, when a manufacturer finds that 
he has produced more goods than can be sold at home, he 
sells them abroad at greatly reduced prices. In both these 
cases, the principle of local fitness has been violated. 

In order to ascertain whether this principle is generally 
observed in American foreign trade, let us examine the 
character of American exports and imports. Although the 
amount of manufactured goods which the United States 
exports is gradually increasing, agricultural products make 
up half of our export trade. Chief among our exports are 
cotton, provisions, iron and steel manufactures, bread- 
stuffs, copper and its products, mineral oils, ^^g„-^^„ 
gold and its products, live stock, tobacco, and foreign 
agricultural implements. On the other hand, the 
imports of the United States consist largely of sugar, coffee, 
chemicals, drugs and dyestuffs, cigars, raw silk, India rubber, 
wool, jewelry and precious stones, fruit and nuts, and some 
copper and iron manufactures. In a general way, therefore, 
the United States exports what the country is fitted to pro- 
duce and imports what other countries are especially able 
to turn out. Although there are some striking exceptions 
to the rule, the trade relations of the United States may be 
said, for the most part, to conform to this general economic 
principle. 

General Features of Foreign Trade. — To-day interna- 
tional trade has taken on some well-defined characteristics. 
In the first place, certain locaHties have developed its charac- 

tsristics * 

into world markets ; that is, definite places have ^ , , 
become centers of trade for particular commodi- markets. 
ties. For example, Chicago and Liverpool are world mar- 
kets for wheat. Each of these markets feels the effect of 



244 Elements of Economics 

adverse conditions in the other. If there should be a wheat 
famine in Europe and an abundant crop in the United States, 
the export trade of the United States in this commodity 
would increase enormously. On the other hand, if condi- 
tions were reversed, American exports would fall off. 

In this manner, prices of standard commodities are fixed in 
world markets, because the condition of one market offsets 
that of the other and prevents great price fluctuations. 
While, normally, prices largely depend on conditions of 
production, they themselves determine the movement of 
international trade, and this, in turn, brings about an equi- 
siandard Ubrium in price. Thus, in response to the dif- 
prices. ference in prices at two centers, wheat may be 

shipped from one country to another, — a movement which 
will ultimately result in this difference in price being largely 
ehminated. With increased exportation (demand), low 
prices will gradually rise ; and with increased importation 
(supply), high prices will gradually fall. The cable, the 
telegraph, and telephone easily make known these differ- 
ences, and a gradual equiHbrium in price is effected. 

Another unique feature of international trade is the fact 
that it is carried on largely without the use of money. The 
exports of a country are used to pay for its imports. If the 
two amounts always balanced, no money of course would be 
needed. When exports are greater than imports, however. 
Method of somc method of payment must be devised. For 
payment. example, if, during a certain period, the United 
States exports to England $100,000,000 worth of goods and 
imports from England $75,000,000 worth of goods, England 
at the end of that time owes the United States $25,000,000. 
As we have seen in the chapter on Instruments of Exchange, 
the usual method of canceling foreign debts is through bills 



Foreign Trade 245 

of exchange, which make the actual transport of large sums 
of money across the water unnecessary. Occasionally, 
however, gold may be shipped from one country to another 
either to settle a trade balance, or to obviate the payment 
of high rates on bills of exchange. 

In one form or another, certain restrictions have always 
been placed on international trade. In America the 
Navigation Acts of Parliament were followed by the tariff 
acts of our own government, which serve indi- its restric- 
rectly to restrict freedom of commerce. Of ^' 
course, a tariff for revenue only is but a slight kinds. 
restriction on international trade. However, a protective 
tariff forms a considerably greater obstruction to com- 
merce, while retaliatory tariffs and tariffs so high as to 
become prohibitive prove effectual barriers to the free 
development of international trade relations. 

The purpose of restricting commerce through a protective 
tariff is obvious. Suppose, for example, an American manu- 
facturer can produce steel rails for twenty dollars a ton and 
a German manufacturer can actually sell them in New York 
for fifteen dollars a ton. Under these circumstances, the 
American manufacturer will either have to invent Purpose of 
a cheaper process of manufacture or be forced P>''>tecHon. 
out of business. The first he is unable to do. Therefore, 
to protect him, the government passes a tariff act which 
makes it possible for him to manufacture steel rails profit- 
ably without being undersold in his own market. In order 
to develop home manufactures, cheaper foreign goods are 
thus displaced by more expensive native products. When- 
ever the manufacturers of one nation are unable to compete 
successfully with those of another, artificial barriers in the 
form of tariff laws will be enacted for their protection. 



246 Elements of Economics 

Thus, the principle of protection comes into conflict with 
the principle of local fitness which is the basis of the doctrine 
of free trade. Under normal conditions, there is no doubt 
that free trade is beneficial to a community. In addition 
The result ^° widening the sphere of friendly commercial 
accom- intercourse, it results in cheaper production and 

better products. However, protection itself re- 
sults in many benefits. Chief among these is its creation, 
in our own country, of a complete and self-sustaining eco- 
nomic unit. Should the United States to-day be cut off 
from the rest of the world, little difference would be felt in 
the amount and character of the goods consumed. 



TOPICS FOR CLASS DISCUSSION 

1. Why do men trade ? 

2. Explain the connection between individual trading and com- 
munity trading. 

3. Is foreign trade extensive in the South Pacific cannibal islands ? 

4. Why did foreign trade develop ? 

5. In foreign trade, is one nation the loser and another the gainer? 

6. May both nations gain from international trade ? 

7. What are the advantages of international trade ? 

8. If Canada were annexed to the United States, would the charac- 
ter of the trade between the two regions be changed ? 

9. Would a rise in prices such as took place during the Civil War 
increase imports ? 

10. When China becomes modernized, can the United States expect 
to export large quantities of manufactures to that country? Of 
agricultural products ? 

11. How is a country like England, which has no gold mines, 
supplied with gold ? 

12. Would you expect gold to have a lower value in Alaska than 
in England ? Why ? 

13. Why do we not have export duties in the United States? 



Foreign Trade 247 

14. What is the distinction between a protective tariff and a tariff 
for revenue only ? 

15. What is protection? Discuss the arguments offered in its 
support. 

16. What is free trade ? What are the arguments in favor of it ? 

REFERENCES 

Theory of International Trade — C. F. Bastable. 
Theory of Foreign Exchanges — G. J. Goschen. 
Tariff Problems — W. J. Ashley. 
Protection or Free Trade — Henry George. 



CHAPTER XXXI 

Taxation 

I. Division of the taxing power 

1 . Federal taxation : 

a. Customs duties : 
(i) Kinds of duties 
(2) Articles taxed 

b. Excise taxes : 

(i) Meaning of excises 

(2) The articles usually taxed 

(3) Other goods taxed 

c. Other taxes : 

(i) Corporation tax 
(2) Income tax 

2. State and local taxation : 

a. The character of each 

b. The general property tax : 
(i) How it is levied 

(2) Its defect 

II. Principles of taxation 

1. Purpose of taxation : 

a. The former practice 

b. The present policy 

2. Principle of apportionment 

3. Burden of taxation: 

a. Indirect taxes : 

(i) How their payment is shifted 

(2) Who bears the burden 

(3) The defect in the American system 

b. Direct taxes : 

(i) Some examples 

(2) Status of the income tax 

c. The conclusion 

248 



Taxation 249 

Closely connected with the subject of trade is the question 
of taxation. In fact, while the primary purpose of protec- 
tive tariffs is the encouragement of home industry by the 
imposition of restrictions on international trade, tariff acts 
also serve as effective instruments of taxation and are 
therefore very generally employed by modern governments 
to produce the revenue required for their maintenance. 

Division of the Taxing Power. — In the United States, 
tariff or customs duties are levied exclusively by the federal 
government, because Congress has sole power to regulate 
trade with foreign nations. It will at once be seen that this 
division of commercial powers between state and nation 
results in a corresponding division of the power of taxation. 
While the state is thus excluded from making use of particu- 
lar forms of taxation, the taxing power of the national gov- 
ernment is also restricted in certain respects. For example, 
no taxes may be laid on articles exported from any state and 
direct taxes must be laid in proportion to the population. 

Nine tenths of the revenue of the United States is derived 
from customs duties and excise taxes. Customs duties are 
either specific or ad valorem according as to Federal 
whether they are based on quantity or value. ^ , 

-^ ^ -^ Customs 

In the United States, the number of articles on duties. 
which such duties are laid is very large. Chief among these 
are wool, sugar, silk, iron and steel, cotton, tobacco, flax, 
chemicals, glass, leather, earthenware, and jewelry. Thus it 
will be noticed that not only luxuries, but also many neces- 
saries of life, are subject to this kind of taxation. While 
there is always a " free list," this enumerates such a small 
number of articles as to make it of insignificant importance. 
But while the tariff yields a large revenue, the income 
derived from excise taxes in the United States is equally 



250 Elements of Economics 

important. Excises are taxes laid on articles consumed, 
sold, or manufactured within a country, and the revenue 
they yield is known as "internal revenue." The commodi- 
ties most usually subject to this kind of taxation are Kquors 
and tobacco. Because they are luxuries, these goods are 
^ . heavily taxed, and by reason of their general use 

Excise taxes. ^ / ^ o 

yield great revenues. However, these are not the 
only goods subject to an excise tax. For example, oleo- 
margarine, filled cheese, mixed flour, and adulterated butter 
have been included in this kind of taxation. When, too, 
during times of great necessity, it has been found necessary 
to increase our internal revenue, special taxes have been laid 
on various articles. During the Civil War, nearly all forms 
of luxury were subject to taxation ; and again, during the 
Spanish-American War, playing cards, patent medicines, 
and legal documents were likewise taxed and made to 3deld 
considerable revenue. 

While these are the usual forms of taxation that the United 
States has relied upon to secure revenue, other taxes, such 
for example, as the recent tax laid upon corporations, are 
from time to time utilized. Such a tax serves a double 
purpose. It is not only a source of revenue, but, by reason 
of the publicity entailed, it also serves as a helpful means of 

regulating corporations. An income tax has 

yJlflCT tu/XCS . 

also been tried by the federal government. Two 
such laws have been enacted. The first, passed during the 
Civil War, was declared constitutional ; while the second, 
enacted in 1894, was declared unconstitutional on the ground 
that an income tax was a direct tax and therefore must be 
laid in proportion to the population. This law of 1894 laid 
a tax of two per cent on all incomes, including those of cor- 
porations as well as of individuals, above $4000 a year. 



Taxation 251 

Either through another reversal of the Supreme Court or 
through constitutional amendment such a tax may again 
be employed. 

Coming now to the subject of state and local taxation, we 
find that there are likewise certain well-defined ways in which 
the states and local units secure their revenues. The states 
rely usually upon the general property tax and taxes laid 
upon corporations, licenses, and inheritances ; while the local 
units also depend largely upon the general prop- state and 
erty tax in addition to special license and fran- ^°^^^ *^®^" 
chise taxes as well as poll taxes. Therefore, the general 
property tax, which the federal government does not em- 
ploy, is the main source of local revenue. Everywhere it is 
in evidence. Assessors value the property; governing 
bodies fix the tax rates ; and local authorities collect the 
taxes. This general property tax, although intended for 
both real estate and personal property, does not effectively 
reach personal property. The reason for this is obvious. 
Land and houses cannot be hidden from the eye of the tax 
collector, but personal property may be readily concealed. 
This phase of the tax, therefore, has the effect of discrimi- 
nating against conscientious citizens. 

Principles of Taxation. — All systems of taxation, whether 
national or local, should be made to conform to certain gen- 
eral principles. In the first place, since a tax is a compul- 
sory payment made by an individual for the support of 
government, its purpose should be public. Otherwise, as 
in the past, if taxation were employed for private purposes, 
it would constitute a form of robbery and spoha- Purpose of 
tion. So long as the proceeds of taxation went taxation, 
into the pockets of kings and nobles and were spent by them 
in riotous living, taxation meant robbery. To-day, however. 



252 Elements of Economics 

although the national government is obliged to spend large 
sums of money for purposes of protection and maintenance, 
the state and local governments devote their incomes largely 
to the advancement of education, general security, and social 
improvements. Among the latter, better streets, cleaner 
water, and more playgrounds are assuming greater impor- 
tance. Increased taxation may therefore mean higher social 
welfare. 

Another important point to be considered in any system 
of taxation is the principle according to which taxes should 
be apportioned throughout the community. On this ques- 
tion there are two opposing theories. On the one hand, it 
is maintained that taxes should be levied according to special 
benefits received ; on the other, it is held that they should be 
laid in proportion to ability to pay. If taxes were levied 
according to the first principle, those receiving most bene- 
Principie ^^^ ~' ^^^ P°°^ ^^^ needy — would be taxed 
ofappor- most heavily. This would evidently be unjust. 

tionment. -re ^ ' , i • i • j.* j. 

If, however, taxes were laid m proportion to 
abiHty to pay, those enjoying the comforts of hfe — the 
rich and well-to-do — would contribute largely to the 
support of government. At the same time, the mere exist- 
ence of government would confer a very great benefit on 
these wealthy classes and justify their large contributions 
to pubhc support. Therefore, we must conclude that abil- 
ity to pay, not benefits received, should be the determining 
factor in apportioning taxes. 

Directly connected with this subject of apportionment is 
Burden of the question of the burden of taxation. A tax 
taxation: ^^^y |-,g intended for one person but paid by 
another. That is, the first individual shifts the payment of 
the tax to another and, in this manner, makes the burden 



Taxation 253 

of taxation fall on some one not originally intended. Taxes 
which may be shifted are usually spoken of as indirect taxes, 
while those which may not are called direct taxes. 

Customs duties are typical of indirect taxes. This tax 
intended for the foreign manufacturer is, of course, not 
really paid by him, because he shifts its payment to the im- 
porter; and the importer, in turn, shifts it to the consumer 
in the form of higher prices. Meanwhile, if the consumer 
decides to buy the domestic article, he finds of indirect 
course that its price has correspondingly increased. ^'^^^•^■ 
Therefore, whether he buys the domestic or imported article, 
the burden of this tax falls on the consumer. If he does not 
pay it to the government, he does to the home manufacturer. 
In the United States, since customs duties are so generally 
levied and since they fall so largely upon commodities in 
common use, like sugar and woolen goods, the burden of 
customs taxation falls chiefly upon the poor. This is further 
accentuated by the fact that excise taxes, which may also 
be shifted, are heavily laid on tobacco and liquors, which 
constitute an important item in middle class consumption. 

On the other hand, direct taxes are taxes which cannot 
readily be shifted. The best examples of these are poll 
taxes, taxes on land, and on individual income. As we have 
seen, the Supreme Court once declared this last-mentioned 
tax an indirect and then later a direct tax. In the first case, 
it interpreted the phrase " direct taxes " to mean Direct. 
those taxes that were considered such when the '''^^^■^■ 
Constitution was adopted, viz. poll' and land taxes. In its 
later decision, it considered a tax on income to be a tax on 
the property from which the income is derived, and therefore 
a direct tax. Since this tax was not laid in proportion to 
the population, the Court declared it unconstitutional. 



254 Elements of Economics 

Leaving aside the question of constitutional difficulties, 
it seems unfortunate from an economic standpoint that no 
federal income tax is at present permissible. The great 
burden of taxation imposed on the poor by means of duties 
and excises should be offset by some form of direct taxation 
The con- ^^ ^^^ Wealthier classes. An income tax seems 
elusion. the most simple means of bringing about this 

more just apportionment. While the well-to-do classes are 
now subject to the general property tax of the state and 
local governments, the concealment of stocks and bonds 
and other personal property offers frequent opportunity 
for escaping just taxation. 

TOPICS FOR CLASS DISCUSSION 

1. What are the reasons for the growing demand for a reduction 
of the tariff ? 

2. Explain the attitude of the different sections of the country 
toward the tariff at the present time. 

3. What advantages does a system of customs duties offer as a 
means of raising revenue ? 

4. Would customs duties be a satisfactory source of revenue for 
the United States in time of war with a great naval power ? 

5. Make a list of the disadvantages of a system of customs duties. 

6. Who bears the burden of a revenue tariff ? 

7. Who bears the burden of excise taxes ? 

8. Who bears the burden of an income tax ? 

9. Should incomes below a certain amount be exempt from taxa- 
tion? 

10. How high a rate should you approve in taxation of inheritances ? 

REFERENCES 

The Science of Finance — H. C. Adams. 
Essays in Taxation — E. R. A. Seligman. 
Introduction to Economics — H. R. Seager. 
Public Finance — C. F. Bastable. 



PART V 
THE DISTRIBUTION OF WEALTH 

CHAPTER XXXII 

Preliminary Survey of Distribution 

I. Nature of distribution 

1. Meaning of distribution 

2. The shares in distribution : 
a. How they arise 

h. What they are 

3. InequaHties of income : 
a. Causes: 

(i) Monopoly of land 

(2) Monopoly of capital 

(3) Exploitation of labor 

(4) Difference in productive capacity 
h. The consequence 

c. The remedy 

II. Groups of distribution theories 

1 . The productivity theory : 
a. Its basis 

h. What it advocates 

2. The monopoly theory: 
a. Its basis 

h. What it advocates 

c. Why monopoly is emphasized 

In our treatment of economics thus far, we have consid- 
ered the problems arising from the consumption, production, 

255 



256 Elements of Economics 

and exchange of wealth. The chapters devoted to a discus- 
sion of the mechanism of exchange have shown us that this 
phase of economics, in common with all its other parts, is 
intimately connected with the subject of individual and so- 
cial welfare. There still remains one phase of wealth that 
we have yet to consider, that is, the problem of its distribu- 
tion. 

Nature of Distribution. — The problem of distribution 
deals with the principles according to which the wealth of 
society is distributed among its members. Exchange 
Meaning deals with the mechanism whereby goods are 
ofdis- transferred from one person to another through 

u ion. ^^ medium of money, credit, trade, or some 
similar device. Distribution, on the other hand,- considers 
the question, " How much wealth goes to one member of 
society and how much to another? " 

Two questions naturally suggest themselves to the stu- 
dent of the distribution of wealth. In the first place, 
"How is wealth created?" In the second place, "To 
whom does wealth belong? " If three men build a boat, it 
The shares belongs to them. If, however, instead of a 
in distribu- boat, all the wealth of society is to be considered, 
it becomes necessary to inquire in detail what 
factors produced this wealth in order to know who are 
entitled to it and how it should be distributed. The 
factors which produce wealth are land, labor, and capital. 
Therefore, if land, labor, and capital have produced the 
wealth of society, land, labor, and capital must be entitled 
to its use and enjoyment. This is the basis of the distri- 
bution of wealth throughout society. Each factor in pro- 
duction is entitled to a share in distribution by reason of 
the part it has played in production. Each share in dis- 



Preliminary Survey of Distribution 



257 



tributlon is then given a special name in accordance with 
the factor it represents, — land's share is called rent ; 
capital's, interest; and labor's, wages. These factors in 
production and shares in distribution may be represented 
in a simple manner by the following diagram : 

SHARES IN DISTRIBUTION 



RENT 



INTEREST 



WEA 



LAND 



WAG^S 



LTH 



Y 

CAPITAL 



V 
LABOR 



FACTORS IN PRODUCTION 

In our further discussion it will be shown that certain 
modern conditions interfere to prevent the shares in distribu- 
tion from corresponding exactly to the respective parts played 
by the factors in production ; that other elements enter 
not only into production but also into distribution; and 
that these shares themselves, as the diagram might seem 
to indicate, are by no means equal in amount. 

This fact of the inequality of the different shares in distri- 
bution is seen in the inequality of income of different classes 
of people throughout society. Of course rent really goes, 
not to land, but to the landlord, and interest not to capital, 
but to the capitalist, while wages goes to the inequaii- 
laborer. Therefore, if rent and interest increase come/°' 
rapidly and wages does not, the income of land- The causes. 
lords and capitaKsts will rise, while that of labor may remain 
almost stationary. These inequalities of wealth and in- 
come constitute a very real factor in the life of every modern 
community. Fifth Avenue stands out in sharp contrast 
to the lower East Side. Compared to the adversity of the 



258 Elements of Economics 

many, the prosperity of the few is exceptional. Here, for 
example, is one family with an income of five hundred dol- 
lars a week, and there another, struggling to maintain itself 
on five hundred dollars a year. What, then, are the causes 
of this great inequality of income? Many explanations 
and suggestions have been offered to account for this differ- 
ence of wealth, but there is little harmony of opinion among 
writers as to its ultimate cause. To-day, however, in Amer- 
ica four factors seem to stand out as prominent and striking 
causes of such inequality : (i) monopoly of land, (2) monop- 
oly of capital, (3) exploitation of labor, and (4) difference 
in productive capacity. 

The monopoly of land or natural resources in the United 
States has already been referred to and its effect on prices 
explained. No one can fail to see the social importance of 
this monopoly control. Since national prosperity is directly 
dependent on natural resources, and since individual wel- 
fare is closely related to social prosperity, every effort should 
be made to extend the use of natural resources to all members 
of the community. If, however, these resources should be 
monopolized or withheld from use by a few individuals, the 
great mass of people would either be deprived of advantages 
or forced to pay exorbitant prices for the enjoyment of their 
products. Through the monopoly of land, prices may be so 
controlled as to deprive the consumer of a large part of his 
income. 

Monopoly price, depending on the monopoly of natural 
resources, is thus one means of shifting income from one 
class to another. But the determination of price does not 
depend entirely upon the monopoly of natural resources. 
Monopoly of capital is also a factor in determining monopoly 
price and in bringing about great monopoly profits. The 



Preliminary Survey of Distribution 259 

concentration of great masses of capital in the hands of few 
individuals gives them a tremendous advantage in fixing 
prices, in creating profits, and in diverting income from oth- 
ers to themselves. Likewise, special privileges secured 
through patents and copyrights play an important part in 
creating monopoly profits. 

Because of this monopoly power, some writers maintain 
that the wealth of one group in society often increases at the 
expense of another. They take the view that, if certain 
men receive more than they produce, others receive less 
than they produce. A monopoly profit is a profit secured 
through the possession of some unusually great power, either 
in the form of land resources, or capital resources, or labor 
resources. Setting aside, for the moment, the monopoly 
power that comes from exceptional capacity or unusual 
training, it is maintained by this school of writers that the 
monopolist, deriving his power through an exceptional con- 
trol of land or capital, is reaping where he has not sown, 
— that is, securing value which he has not produced. 
If, therefore, labor has produced this value and is deprived 
of it, the monopolist is charged with exploiting labor for his 
own benefit. In this manner, monopoly of land, monopoly 
of capital, and exploitation of labor constitute, in the 
opinion of these writers, a series of causes which explain 
many of the inequalities in social income. 

Opposed to this explanation of inequalities of income we 
have the view of another school of writers which seeks in 
labor itself the cause of such inequality. According to this 
view, it is not the monopolist, nor the capitalist, nor the 
so-called exploiter who is responsible for differences in in- 
come. These differences are due primarily to differences 
In earning capacity. If one man's income is five hundred 



26o ' Elements of Economics 

dollars a year and another's five thousand dollars a year, the 
difference is due to the fact that the first laborer has but 
one tenth the productive capacity of the second. Labor 
itself — not land or capital — is thus held responsible for 
its own condition. 

Despite any difference of opinion regarding the causes of 
these inequalities of income, there can, however, be no 
doubt of their existence and consequences. We have seen 
that a standard of living is determined largely by wages, 
and we now see that wages depends upon distribution. 
The conse- Therefore, inequalities of income have a direct 
quence. effect upou Standards of living. While, to-day, 

comparatively few individuals have such great incomes as to 
permit the development of the highest possible economic 
standards, large numbers of people are existing on a standard 
of living so low that they are scarcely able to secure the 
necessaries of Hfe. As a consequence, the children of these 
families are Hkely to grow up to be inefficient men and 
women. 

These low standards and wages brought about by ine- 
quahties of income can find no justification in the nation's 
natural resources or in the productive capacity of the indus- 
trial system. To-day, the United States easily produces 
sufficient economic goods to maintain every family on a 
basis of efficiency. There is enough wealth 

1 he remedy. _ " 

for all to enjoy. If, then, our productive system 
is so efficient, why does poverty exist beside riches ? Evi- 
dently the answer to this question may be found in a study 
of the present system of the distribution of wealth through- 
out society. If we would seek to remedy these inequalities 
of income, we must bring about some change either in indi- 
vidual capacity or in the system of distribution whereby 



Preliminary Survey of Distribution 261 

the different shares of wealth that go to land, labor, and capi- 
tal may become more equal. 

Groups of Distribution Theories. — From this brief 
discussion it may readily be seen how vital is the problem of 
wealth distribution. Without a proper distribution of 
wealth, the attainment of economic ideals, such as effi- 
ciency, opportunity, prosperity, and welfare, would be im- 
possible. 

Unfortunately, economists do not agree on one single 
theory of distribution. In fact, opinion has been so divided 
that many conflicting theories have been advanced from 
time to time. In general, however, theories of distribution 
may at present be divided into two main groups, (i) those 
emphasizing productivity, and (2) those emphasizing monop- 
oly as the determining factor in the problem. While both 
these schools of writers believe in social justice, they vary in 
their explanations of the causes of inequalities The pro- 
of income. The productivity school bases its theory\^ 
theory on competition and productive capacity, its basis. 
Its followers hold that certain natural laws always tend to 
produce given results. One of these natural laws, competi- 
tion, will result in a just system of distribution provided it 
be left free to work itself out. In the absence of competi- 
tion, distributive justice is obviously impossible ; but were 
competition widespread, a just system of distribution 
founded on productive capacity would be inevitable. 

Proceeding on this basis, the productivity theorists apply 
their system to modern society through the program of 
government regulation. They admit the presence of 
monopoly but direct all their efforts towards its abolition 
because they believe that only through competition will 
justice be realized. That is, they advocate strict govern- 



262 Elements of Economics 

ment regulation of industry. This theory holds that the 
shares in distribution are determined exactly by the extent 
What it of productivity. That is, if a tin dipper costs 
advocates. ^^^ ccnts, and if natural resources contributed 
two cents to its production, under a strictly competitive 
regime, natural resources would be paid two cents in rent. 
In the same way, if labor contributed four cents, labor would 
receive four cents as wages. Thus, if competition can be 
made free, society will naturally right itself by the action 
of this universal law. 

The monopoly theory of distribution, in distinct contrast 
to this productivity theory, looks upon monopoly as the 
factor of prime importance and as the logical outcome of 
present social development. Social evolution has reached a 
stage in which monopoly is inevitable. This school, there- 
fore, takes the position that no person is to blame for mod- 
ern industrial monopoly. Monopoly is not " wrong." 
It is merely a product of modern industrial conditions. In 
The mo- other words, monopoly is an economic law of 
|)^eo°y . modern society. Therefore, in solving the dis- 

iis basis. tribution problem, monopoly, not productivity, is 
looked upon as of primary importance. According to the 
theories advanced by this group of thinkers, if natural re- 
sources contribute but one cent to the actual production of 
the dipper, nevertheless, because of the monopoly which the 
owner of the natural resources possesses, the amount which 
goes to him may be three cents, — one cent representing the 
contribution of natural resources and two cents represent- 
ing monopoly power. 

If this monopoly theory be true, the method of securing 
a more equal distribution of wealth lies in the increase of 
monopoly power rather than in its abolition. This school. 



Preliminary Survey of Distribution 263 

therefore, advocates increasing labor's monopoly power. 
Does the laborer feel that he is being unfairly treated by 
not securing the full value of his work? Or, what it 
does he think he is being exploited by his em- o,<^'"ocates. 
ployer? If so, he has but one remedy. That is, he must 
secure through organization, education, or legislation some 
special monopoly which will enable him to make headway 
against the monopoly enjoyed by his employer. 

In contrasting these two theories, it may be said that the 
productivity theory of distribution is really a prophecy of 
what might be under ideal conditions of competition, while 
the monopoly theory is an analysis of things as they really 
are. For this reason the monopoly theory furnishes a much 
more adequate basis for a discussion of modern ^^^^ ^^ 
conditions than the productivity theory. While, nopoiy is em- 
therefore, in the following chapters, the produc- "'^''"'^ ' 
tivity theory of distribution will be kept in mind, chief 
emphasis will be laid upon the monopoly principle when- 
ever it appears to be the determining factor in distribu- 
tion. Throughout the entire discussion of the principles of 
distribution, it will be the aim, however, to present as 
nearly as possible one consistent theory of distribution rather 
than a disjointed resume of conflicting theories. 

TOPICS FOR CLASS DISCUSSION 

1. In Economics why should the emphasis be laid to-day on the 
subject of distribution rather than on that of production ? 

2. If a man produces one commodity, how does he satisfy his 
wants ? Upon what will his ability to satisfy his wants depend ? 

3. What idea lies back of the expression "distribution of wealth" ? 

4. What are the different methods by which people obtain their 
incomes ? 



264 Elements of Economics 

5. How can a chair be said to be distributed among the land, labor, 
and capital creating it ? 

6. What is the relation of private property to distribution? 
How is this illustrated in the case of land ? In the case of capital ? 

7. Was there any distributive problem when each household was 
economically self-sufficient ? 

8. WTien we speak of the economic inequalities of to-day, do we 
mean inequalities of property or of income ? 

9. What is the relation between political democracy and industrial 
democracy ? 

10. If a man cooperates with others in making a commodity, what 
determines the extent of the share he can secure ? 

11. Should a man be paid according to his ability or according to 
his needs ? 

REFERENCES 

The Distribution of Wealth — J. B. Clark. 
The Distribution of Wealth — J. R. Commons. 
Progress and Poverty — ^ Henry George. 
Introduction to Economics — H. R. Seager. 
The Theory of Prosperity — S. N. Patten. 



CHAPTER XXXIII 
The Theory of Rent 

I. Nature of rent 

1. What rent means 

2. How rent is paid 

3. How rent arises : 

a. From differences of fertility. 

b. From differences of location 

II. The grades of land 

1. The usual grades 

2. The " no-rent " land 

3. How rent varies : 
a. Between grades 
h. Within a grade : 

(i) Marginal rent 

(2) Differential rent 

(3) An illustration 

c. The general principle 

d. Explanation of diagram 

e. Other applications of the law 

4. The conclusion 

Nature of Rent. — The most generally accepted and most 
firmly established theory of distribution is that relating to 
rent. Rent is the return on natural resources and, in eco- 
nomics, means the amount of wealth that ^ffy^^^ 
"land" receives for its part in production, "rent" 
Therefore, from an economic standpoint, "rent" ™®^^' 
means something quite different from the sense in which the 
word is used by the real estate broker. The latter uses the 

265 



266 Elements of Economics 

term to represent not only the return on land — the lot — 
but also the return on capital — the house. Real estate 
rent, therefore, includes both rent and interest; but eco- 
nomic rent signifies simply the return on land. This dis- 
tinction is fundamental and must always be borne in 
mind. 

It is equally important to remember that rent exists re- 
gardless of the manner in which it is paid or of the person to 
whom it is paid. For example, land may receive its share of 
rent in the form of so many extra bushels of wheat as well as 
in the form of money representing these bushels of wheat. 
How rent Likewise, this rent is paid to land regardless of 
IS paid. whether the land is used by the owner or by the 

tenant. Since land cannot take this rent itself,- some one 
must take it for the land. Therefore the landlord receives 
the rent. If he uses the land himself, he receives it in the 
form of extra crops ; if some one else uses it, he takes it in 
the form of money. When the owner and the user are two 
different persons, it may easily be seen that the payment of 
rent becomes more marked and more socially significant. 

Since rent exists so generally and since it is paid so uni- 
versally, one naturally asks, " How does rent arise and what 
reason is there for its payment? " To this question there is 
How rent a clear and definite answer. Rent arises because 
arises: q£ differences in the productive capacity of va- 

rious lands. This difference of productivity may be due to 
a difference in the fertility of the soil or to a difference in the 
location of the land. 

First of all, picture in your mind two separate tracts of 
land, each an acre in size. Every spring the two farmers 
owning these tracts go out to plant their grain. They may 
use the same quality of fertilizer, the same kind of grain, 



The Theory of Rent ■ 267 

and the same kind of plow, and have the same efficiency 
in their labor force. In the fall, one farmer reaps twenty 
bushels ; the other, fifteen. To what can we at- p^^^ 
tribute this difference in yield of five bushels per diferences 
acre ? In all production there are three factors, — ° &rt%y. 
land, labor, and capital. On these two acres the capital and 
labor were, by assumption, respectively identical. This 
being the case, there remains but the third factor to which 
we can attribute this extra growth of five bushels. That is 
land. The extra return of five bushels is the income which 
we can attribute to the better acre because of its superiority 
over the poorer one. Such an increase is termed " rent." 
Thus, economic rent arises because " land " aids man une- 
qually in production. In one place it yields fifteen bushels, 
in another twenty. This difference in the yield constitutes 
the rent. 

Again, let us picture to ourselves two retail stores of equal 
attractiveness so far as the building and goods are concerned, 
and each with equally efficient management. One is lo- 
cated on the outskirts or edge of the business district and 
the other is near the center of one of the busiest thorough- ■ 
fares. At the end of the year, the net profit of the one 
store may be one thousand dollars, while the net ^^^^ 
profit of the other may be two thousand five diferences 
hundred dollars. To what, then, must we attrib- 
ute this difference in earning power amounting to fifteen 
hundred dollars per annum ? The labor is equally efficient ; 
the physical equipment of the stores is similar. The 
difference, then, can only be attributed to the third factor 
in production, namely, land. The income which we must 
attribute to this second store because of its superiority in 
location over the poorer we also call economic rent. In 



268 Elements of Economics 

the first illustration, the superiority in fertility gives rise 
to rent, while in the second, the superiority in location has a 
like effect. Superiority may, of course, be the product of both 
fertiHty and of location, as in trucking land near great cities. 

Rent, therefore, arises from differences in the value of 
land, and the rent of any piece of land is the difference be- 
tween its yield or value and that of a particular piece of land 
taken as a basis of comparison. 

The Grades of Land. — The center of every city is de- 
voted to the purposes of business. Outside this district 
we find, roughly speaking, the circular belt of the residen- 
tial district, which, though it has not quite the high social 
The usual value of the business section, still plays an im- 
grades. portant part in the use that man makes of land. 

Then beyond the confines of the city is the land devoted to 
truck farming ; still farther out lie lands devoted to general 
farming and to grazing. 

There may still be land lying beyond the grazing land 
which is least desirable for any of the uses to which man 
" No-rent " ^^^ P^^ land, but which may serve to catch the 
land. overflow of population,, or may be used by 

the less fortunate members of society who are willing to 
go on this poor outlying land and work there for a bare 
living. This last type of land has earned the name in eco- 
nomics of " no-rent " land, — a term which implies that a 
man working on such land will merely get enough from his 
labor to allow himself his daily wage and to pay for the few 
simple tools and seed that he may need in cultivating it. 
Its fertility is so low that, when a definite return from the 
land is set aside to pay the wages of labor and the interest 
on capital, there is nothing left for rent. Hence the ex- 
pression " no-rent " land. 



The Theory of Rent 269 

Broadly speaking, that class of land which has the high- 
est social value will yield the largest amount of rent, and, of 
each class, that land which is superior will yield the higher 
rent. Accordingly, all land used for busi- Rent varies* 
ness purposes yields a greater income than land Between 
used for residential purposes. This latter in ^''^'^^•^• 
turn yields more than land used for trucking, while truck- 
ing land yields more than land used for farming. Again, 
farming land is more valuable than land used for grazing, 
which, in its turn, brings in a higher return than " no-rent " 
land. 

It is apparent, however, that though this general scheme 
of gradation of the size of rents holds good, there are many 
variations in rent, and no two pieces of land in the same belt 
pay the same amount of economic rent. Hence, we speak 
of the poorest land of each belt or class — the marginal land 
— as receiving a marginal rent. If we take this poorest land 
as our basis, better land in the same class must wuMn a 
pay a higher rate due to its superiority. This ^^"''^^^ 
additional rate is called the differential rent, so that in theory 
all land which is better, to however small a degree, than the 
poorest land pays a rent composed of these two elements, — 
a sum equal to the amount paid for the poorest land of its 
class, called marginal rent, and an additional sum proportion- 
ate to its superiority over that land, called differential rent. 
The two together equal the economic rent. 

To illustrate, one can imagine a piece of land just on the 
margin of the belt between general farming and trucking. 
It is the poorest land used for truck farming and yields a 
rent of twenty-five dollars an acre. Half a mile nearer the 
city there may be a second farm which, because of its su- 
periority, will have to pay an additional sum of ten dollars, 



270 Elements of Economics 

making its full rent the sum of the marginal and differential 
rent, or thirty-five dollars. Still farther in toward the city 
we can conceive of the very best land used for this purpose 
lying adjacent to the suburban district. This farm, being 
near to the city markets, will have to pay an even greater 
differential rent, perhaps fifteen dollars, making in all a 
total rent of forty dollars. 

If, now, we go even farther toward the city, we immediately 
pass into the next belt in our illustration, the residential. 
The poorest land used for this purpose gives us the new mar- 
ginal rent for that belt. It is obvious, however, that the 
The general amount paid for the poorest or marginal land 
principle. in this belt must be a little higher than that paid 
for the best land of the next lower or trucking belt. 
If this were not so, the land would be put to truck 
farming again, because it would yield by that method a 
larger return. As a result, we have this general principle 
running throughout all rents, the rent of the marginal land 
of the next higher belt is always a little greater than the 
rent of the marginal land of the next lower belt plus its 
greatest differential rent. 

This entire theory of rent is usually illustrated by the 
diagram on page 271. 

The horizontal base represents, of course, the lands them- 
selves, while the vertical lines show their varying produc- 
tivity. From this illustration we are enabled to see, not 
only the varying values of the different classes of lands, but 

., also the varying values of different lands within 

Hon of the same class. For example, at one end of the 

diagram. horizontal base we have land A , the most pro- 
ductive land in the most valuable grade, with a productivity 
represented by AO, of which PO is rent. At the other end 



The Theory of Rent 



271 



we have land F, the least productive land in the lowest rent- 
paying belt, with a productivity represented by FJ, of 
which // is rent. This land F is the marginal land of the 
lowest rent-paying class and its rent (//) is marginal rent. 
A little farther up in this grazing land, however, we find that 
land M has a productivity of ML and that, consequently 
it has a differential rent of KL above the marginal rent of F. 







RENT ^> 


r\ 


















p^L^ 


J 












N 


1 


BUSINESS 


RESIDENCE 


TRUCKING 




FARMING 


GiRAZING 


"NO-RENT 


UND 


LAND 


LAND 




LAND 


iUND 


UND 


A 


B 


C 


D 




E y[ 


F 



Altogether this land M has an economic rent of NL, .which 
represents the sum of both the marginal and differential 
rent. 

So far we have applied the law of rent to only one kind of 
" land," namely, the fields. It is, however, applicable to 
other forms of " land," such as mines and water power. For 
example, marginal water power would be the poorest kind of 
water power that could be profitably used for a certain pur- 
pose, as the running of a sawmill. A larger and stronger 
stream, capable of being used for the same purpose, would 



272 Elements of Economics 

yield a greater return of sawed lumber. This additional 
income would represent the differential rent. Were there 
Other ap- ^ source of Water power so strong that it 
plications of would just pay for the machinery used in har- 
nessing it and the labor needed in operating it, 
it would correspond to " no-rent " land and might well be 
called " no-rent " water power. Likewise, we can apply the 
same fundamental principle of economic rent to mines and 
other gifts of nature. 

According to these principles, land takes one great portion 
of the world's wealth in the form of rent. In any advanced 
civilization the share of distribution that goes to land in the 
The con- form of rent is always increasing because the 
elusion. value of land is always rising. In young arid 
newly settled countries, where natural resources are abun- 
dant and unappropriated, the amount of wealth that goes 
to land is correspondingly small. However, as population 
increases and resources are utilized, the landlord class must 
develop and appropriate a larger and larger share of wealth. 
In the United States, should the monopoly of natural re- 
sources go on unchecked, a great mass of wealth could not 
help but be diverted to the land-owning classes. 



TOPICS FOR CLASS DISCUSSION 

1. With whose name is the theory of rent most closely associated ? 

2. Give local examples of a general rise of rent; the cause. Of 
a general fall of rent ; the cause. 

3. What is meant by the "law of diminishing returns" when 
applied to land ? 

4. Do the governments of other countries own land ? Would it 
have been better for the United States to retain the ownership of its 
land instead of giving it away ? 



The Theory of Rent 273 

5. On what is rent based ? Why would rent disappear if land were 
unlimited in amount and all of equal quality ? 

6. What is the effect upon rent of improvements in the field of 
production ? Of consumption ? Of transportation ? What are the 
forces in society that tend to raise agricultural rents ? Urban rents ? 

7. What would be the effect upon rent if new land were discovered ? 
If a railroad opened up a new country ? 

8. Is the "rent" of a down-town New York office rent in the 
economic sense of the term ? 

g. Are tenants very likely to make permanent improvements 
upon rented land ? Why ? 

10. What is the difference between economic rent and commercial 
or contract rent ? 

11. Can you give examples of a rise of commercial rent? Of a 
decrease ? State the causes in each case. 

12. Is the income yielded by permanent improvements on land 
rent, interest, or profits ? 

13. How has the advent of trolley cars and automobiles affected 
rent? 

14. Do "High rents cause high agricultural prices" or do "High 
agricultural prices cause high rents" ? 

15. What case of unearned increment in land values can you cite ? 

REFERENCES 

The Distribution of Wealth — J. B. Clark. 
Land and its Rent — F. A. Walker. 
Progress and Poverty — Henry George. 
Principles of Political Economy — David Ricardo. 
Introduction to Economics — H. R. Seager. 



CHAPTER XXXIV 

The Theory of Interest 

I. Nature of interest 

1. Its meaning 

2. Some examples 

3. Why necessary : 

a. From the standpoint of saving 

b. From the standpoint of efficiency 

II. What determines rate of interest 

1. Man's valuation of the future : 
a. Individual valuation 

h. Social valuation 

c. Why the rate is low or high 

2. Other considerations : 

a. Concerning supply of capital 

b. Concerning element of risk 

III. Source of the interest fund 

1. The popular view 

2. The scientific view 

3. The summary 

Nature of Interest. — Capital is also a factor in produc- 
tion, and the share assigned to it in the general distribution 
of wealth is called interest. In other words, interest is the 
Meaning return on capital and represents capital's reward 
and for engaging in production. If an individual 

examp es. pgj-j^ts his wealth to be used as capital, instead 
of consuming it unproductively, he will receive this interest 
for its use. Returns on investments, therefore, whether 

274 



The Theory of Interest 275 

received as interest on deposits, or interest on mortgages, or 
dividends on stock, are all forms of interest. Therefore, 
interest is the sum paid for the use of capital. 

The first question that naturally arises in considering in- 
terest is this: Why should it be necessary to pay interest 
for the use of capital? Why should not capital be univer- 
sally employed without receiving any interest ? why neces- 
The answer to this question may be found in a ^"y* 
characteristic of human nature. Interest is necessary be- 
cause man undervalues the future and, consequently, capital 
would soon disappear were no interest paid for its use. 

This payment of interest for the use of capital is necessary 
no matter whether we regard saving or efficiency as the prime 
factor in creating capital. When we view capital from the 
standpoint of saving, the necessity for the payment of in- 
terest is quite apparent. Because man undervalues the 
future he overvalues the present. The present enjoyment 
of one thousand dollars means much more to an p^^^ ^^^ 
individual than a contemplation of its enjoyment standpoint 
a year from now. This is true because the fu- 
ture is so uncertain. Dishonesty, accident, fire, or death 
may intervene to prevent the actual enjoyment of this 
wealth in the future. Therefore, man prefers to consume 
and enjoy it now. But should an individual resist this 
tendency and thus abstain from present consumption, he 
would be obliged, while saving, to make sacrifices. As an 
inducement, therefore, for him to save and as a reward for 
these sacrifices, he is offered more future value for his 
present wealth. Instead of a thousand dollars to-day, he 
receives a thousand and fifty dollars next year. This 
difference of fifty dollars offsets his undervaluation of 
the future and is a sufficient inducement for him to save and 



276 Elements of Economics 

create capital. If such a premium in the form of interest 
were not offered, few would make present sacrifices, wealth 
would be immediately consumed, and little capital would be 
created. 

If we regard capital from the standpoint of efficiency, we 
find that the payment of interest is still necessary. When 
we regard capital as resulting from increased efficiency, 
rather than mere saving, interest must be paid, not as a 
reward for sacrifices, but as a means of preserving capital. 
From the For example, the millionaire's capital must be 

standpoint -j • j. i. • j j,i j. "j. t_ 1 

of effi- paid mterest m order that it may be preserved. 

ciency. Man's undervaluation of the future still exists ; 

and, should he not be offered a higher future value in order 
to offset this discount of the future, he would squander his 
wealth in present consumption. The spendthrift dissipates 
the fortune of his ancestors, and young men with large for- 
tunes frequently enjoy the reputation of being " good spend- 
ers." While in these cases it would be an exaggeration to 
speak of interest as paid for rewarding sacrifices, it is equally 
evident that it must be paid for preserving capital. Should 
interest not be paid, the great accumulations of capital we 
now have would eventually be destroyed. Therefore, 
whether we regard capital as resulting from saving or from 
efficiency, the necessity for the payment of interest still 
exists. 

Rate of Interest. — The next question that naturally 
arises is : What determines the rate of interest ? From 
the previous discussion, it may readily be seen that this 
must likewise depend upon man's valuation of the future. 
Of course there is an individual and a social valuation. It 
need hardly be said that this latter is the determining factor 
in fixing the market rate of interest. If one individual values 



The Theory of Interest 277 

the future highly, his individual rate of interest would be 
low. He would not need much future promise to induce 
him to invest his wealth in a productive enterprise, ^yjan's 
If, however, the community's valuation should be valuation of 
low, the market rate of interest would be high. 
To offset this low regard for the future, a great premium would 
have to be offered in order to induce the community to re- 
frain from present consumption. Under these circumstances, 
a particular individual, having a high valuation of the 
future, would profit by the higher market rate of a commu- 
nity with a low valuation. In any given community, how- 
ever, the market rate of interest will be low or high accord- 
ing as to whether men in general put a high or low estimate 
on future values. In older and more civilized countries, 
because man values the future, highly, the rate of interest 
is lower than in younger and less civilized countries where 
the future is greatly discounted. 

It is Hkewise apparent that when the community as a 
whole places- a high valuation on the future, many people 
will abstain from present consumption and devote a large 
proportion of their wealth to productive purposes. This 
will cause the supply of capital to be plentiful, other con- 
while the rate of interest will be low. On the ^ , ,* 

Supply and 

other hand, when people place a low estimate on demand. 
the future they will consume freely in the present and so 
reduce the amount of wealth devoted to productive enter- 
prise. This situation will cause capital to become scarce, 
while at the same time the rate of interest will be high. 
Thus there develops a certain relation between the supply of 
capital and the rate of interest. When the supply of capital 
is great as compared with the demand for it, the rate of 
interest will be low ; and, conversely, when the demand for 



278 Elements of Economics 

capital is great as compared with its supply, the rate of 
interest will be high. 

Again, the element of risk is frequently spoken of in 
connection with interest. For example, it is often said 
Element of that a high risk means a high rate of interest, and 
risk. 2q^ j-^g]^ 2, low rate of interest. This, however, is 

but another phase of man's valuation of the future. If an 
individual believes that the use to which his capital is put 
is accompanied by great risk, that is, if its , future seems 
uncertain to him, he will demand a high rate of interest. 
The value of this wealth in the future looks so shght that a 
high rate of interest in the present is demanded. Gener- 
ally speaking, however, the element of risk, to-day, is largely 
eliminated in the reckoning of pure interest. When, for 
example, money is deposited in a savings bank, there 
is practically no risk whatever involved in its invest- 
ment. 

Source of the Interest Fund. — There remains yet to be 
examined the source of the interest fund. Whence comes 
the fund from which interest is paid? We have just seen 
why it is necessary to pay interest and the factors involved 
in determining the rate of interest. But how does society 
secure the means with which to pay this sum 
larvfew."" necessary for the use of capital? Does capital 
get it by robbing labor? If so, labor is exploited 
by capital, and that which should go to the laborer in the 
form of wages the capitalist appropriates as interest. This 
view is popular with the laboring class. They are very 
willing to believe that the payment of interest deprives them 
of their full wages. Sometimes, too, there is little doubt 
but that this actually occurs. When large dividends are 
paid on " watered " stock and when, through monopoly, 



The Theory of Interest 279 

an unfair advantage is taken of labor, there is every likeli- 
hood that interest is paid at the expense of wages. 

As opposed to this popular belief, we have the scientific 
view that capital creates its own fund from which interest is 
paid just as labor produces the wealth from which wages is 
paid. Capital, to-day, plays as great and powerful a part 
in the productive process as the other requisites of produc- 
tion. Interest, then, may be paid without any infringement 
on the rights of labor from the extra fund of wealth that 
capital has created. If a merchant, for example, The scien- 
by making his store more attractive, that is, by *^^ ^^^' 
adding to its capital and appointments, increases his busi- 
ness through the efficiency of capital, the extra return thus 
resulting furnishes the fund from which interest is paid. 
Thus, through increased output brought about by increased 
capital, interest is legitimately provided. 

This statement of the theory of interest brings forward its 
essential features. In the first place, the payment of inter- 
est for the use of capital is necessary, regardless of xhe 
whether we consider saving or efficiency as the summary, 
factor of prime importance in the development of capital. 
In the next place, the market rate of interest in any given 
community depends upon the social valuation of the future. 
Finally, the fund from which interest is paid is provided 
through the productive power of capital itself. Capital is 
thus entitled to its normal reward as much as is land or 
labor. 



28o Elements of Economics 



TOPICS FOR CLASS DISCUSSION 



I. 



What is interest ? 

2. State in summary form the theory of interest. 

3. Show in detail the services rendered to production by capital. 

4. Can any part of the earnings of a bootblack be called interest ? 

5. When a company declares an unearned dividend, is the stock- 
holder getting interest ? 

6. Can law fix the rate of interest at any desired point ? Why ? 

7. Why does the rate of interest vary at the same time in different 
sections of the country ? In different businesses ? 

8. The savings of the American people are nearly a billion dollars 
a year. \Vhat and where are they ? 

9. Is interest different from usury ? If so, what is the difference ? 

10. Why has the rate of return on investments often been ten per 
cent in the West, seven per cent in the Central states, five per cent 
in New York, and four per cent in Germany ? 

11. It is said that interest is paid for capital, not for money. Is this 
true? 

12. What is the effect on the rate of interest of a rising standard of 
living ? 

REFERENCES 

The Distribution of Wealth — T. N. Carver. 
Capital and Interest — E. von Bohm-Bawerk. 
The Nature and Necessity of Interest — ■ G. Cassell. 
Principles of Economics — E. R. A. Seligman. 
Introduction to Economics — H. R. Seager^ 
Principles of Political Economy — J. S. Mill. 



CHAPTER XXXV 

The Theory of Profits 

I. Character of profits 

1. Meaning of profits: 

a. The ordinary meaning 
h. The economic meaning 

2. Nature of managing abihty: 

a. Meaning of "entrepreneur" 

b. Requisites of managing ability 

3. Nature of profits: 

a. Relation between profits and wages 
h. Why the special term is used 

c. The diagram 

11. Law of profits 

1. Grades of entrepreneurs : 

a. Those of phenomenal power 
h. Those of unusual ability 

c. Those of ordinary capacity 

d. Those of marginal ability 

2. Degrees of profits : 

a. How they are measured 

b. An example from the diagram 

c. What " no-profit " class receives 

d. The law summarized 

3. The conclusions : 

a. Importance of the entrepreneur 

b. Effect of monopoly power 

Character of Profits. — We now come to an analysis of 
one of the shares in distribution that, up to this point, in 

281 



282 Elements of Economics 

order to avoid confusion of thought, we have purposely re- 
frained from discussing. This share is known as '^ profits." 
Like rent, the word "profits," as used in economics, has a 
meaning distinct from that usually attributed to it. In 
Meaning Ordinary language the term "profits " is used to 
of profits. designate the total gains of a man in business, 
regardless of whether they represent rent or interest or 
wages. For example, a small trader may own his land and 
store, his capital, and contribute his own labor. At the end 
of a year his total gains may amount to one thousand dollars. 
These he considers as one, and calls the whole income profits. 
But, after our discussion of rent and interest, it will readily 
be seen that this loose phraseology would be very mislead- 
ing to the economist. Therefore, in economics, profits is 
employed to mean but one thing, — the reward of managing 
ability. It is the return that the entrepreneur gets for his 
part in production, just as rent is the return on land, or 
interest the return on capital. 

To understand more clearly the character of profits we 
must thoroughly comprehend the nature of managing ability 
which is the entrepreneur's distinctive characteristic. Al- 
ready in a previous chapter we have referred to the entre- 
Nature of preneur as the industrial manager. Managing 
managing ability implies two things, (i) labor and (2) 

* ^" something to manage. Now, this something 

which is managed is of course capital. Consequently 
managing ability represents a united control of capital and 
labor. Skill, judgment, insight, efficiency, — all are re- 
quired in managing ability. It is not necessary that the 
entrepreneur or manager own the capital which he manages, 
although it is perfectly possible for him to be the owner 
as well as the manager. However, to-day the industrial 



The Theory of Profits 



283 



manager is intrusted with the capital contributed by thou- 
sands of stockholders. 

If, then, the entrepreneur represents a combination of 
capital and labor, profits, which is his reward, must represent 
the union of interest and wages. But in this union wages 
is by far the greater factor, because, the entre- Nature of 
preneur is essentially a laborer. His profits are P^^o^ts. 
largely wages. This fact that wages constitutes the 
greater part of profits must always be borne in mind. The 
incomes of our American managers are made up largely of 
the return on their industrial effort. Since, however, it would 
be confusing to speak of the wages of a railroad organizer 
and of the wages of a bricklayer, we especially employ the 
term "profits" to represent the reward of the industrial 
manager. This complete differentiation of the entrepre- 
neur, on the side of production, and of profits, on the side of 
distribution, may be represented by the following diagram : 

DISTRIBUTION 



RENT 



INTEREST 



PROFITS 



WAGES 



WEALT H 



LAND 



^^W^^' 



CAPITAL 



MANAGING 
ABILITY 



V 
LABOR 



PRODUCTION 



In this diagram we notice that, instead of three, there 
are now four factors in production as well as four shares in 



284 Elements of Economics 

distribution. Managing ability has sprung from a union 
of capital and labor, while profits combines interest and wages. 
In these two new elements, — managing ability and profits, 
— brought about by modern economic conditions, the rela- 
tive importance of capital and interest on the one hand and 
of labor and wages on the other is shown by the cross-sec- 
tioned parts of the diagram. No attempt has been made, 
however, to show the relative importance of the different 
factors in production, or the relative size of the different 
shares in distribution. 

The Law of Profits. — We are now ready to consider the 
question of how profits are determined. Why should the 
profits of one industrial manager differ from the profits of 
another? To answer this question we must first examine 
differences in managing ability upon which these profits 
depend. 

While managing ability is of various kinds and degrees, 
entrepreneurs may, in general, be conveniently grouped 
into four classes. At the head of this group of industrial 
managers are those who possess phenomenal managing 
ability. They stand out in bold relief against the back- 
ground of normal power in industrial management. Had a 
man of this phenomenal power in business a corresponding 
abihty in art or literature, he would become as famous 
as Michael Angelo or Shakespeare. It is needless to say 
Grades of ^^^^ ^^^ number of men in this class is extremely 
entrepre- Hmited. Next to the men of phenomenal power 
come those of unusual managing abihty. They 
are men of talent, but just fall short of possessing industrial 
genius. Next to these, come the men of ordinary capacity 
in industrial management. They are successful business 
men and are well known in their respective communities. 



The Theory of Profits 



28= 



The number of men in this class is quite large. Finally, in 
this general group of entrepreneurs, come the men of small 
managing ability. They are on the margin of business suc- 
cess and, as entrepreneurs, they make perhaps a little more 
profits than, as laborers, they would command wages. 
Therefore they hover about the margin of business inde- 
pendence, — sometimes venturing -out for themselves, and, 
again, seeking employment under cover of some one's 
management. Under these conditions, therefore, they may 
be said to possess only marginal managing ability. These 
different grades of ability and the profits they respectively 
command may be represented by a diagram with the prin- 
ciple of which we are already familiar : 




GENIUS 



UNUSUAL POWER 



ORDINARY CAPACriY 



MARGINAL ABILITY 



From this diagram it will be seen that the principle which 
determines degrees of profits is similar to that determining 
differences in rent. Just as we have different grades of land 
with varying productivity, so we have different classes of 



286 Elements of Economics 

entrepreneurs with varying capacity. As we measure 
rents on the basis of the return on " no-rent " land, so we 
Degrees measure profits on the basis of the return on the 
of profits. ii no-profit " class of entrepreneurs. For example, 
the man D, in the diagram, has a return on his effort repre- 
sented by the Hne DE. Of this return DE, LE represents 
profits and is known, in economics, as marginal profits. 
The man A, however, has a much larger return, represented 
by AH, of which IH is profits. In both cases the return of 
these men on their managing ability, that is, their profits, 
has been measured by using the return of the " no-profit " 
class with marginal abihty as a common basis of compari- 
son. It will be seen, therefore, that these men of marginal 
ability, used to represent the " no-profit " class of managers, 
serve the same purpose as the " no-rent " land in the theory 
of rent. It must be remembered, however, that this " no- 
profit " class, just like the " no-rent " land, has some return 
for its effort ; but this return is just the return of ordinary 
labor. Therefore, the law of profits may be thus sum- 
marized : the profits of any given entrepreneur will be 
the difference between his return and the return of the 
" no-profit " class of entrepreneurs. 

We are now in a position to make a clear distinction be- 
The con- tween interest and profits. Formerly the capi- 
ciusions: tahst and entrepreneur were thought of as one, 

Importance - . i r i i 

of entre- 3,nd mtcrest and profits were regarded as syn- 
preneur. onymous. To-day, however, they are being 
differentiated both in production and in distribution. In 
the past few decades, the industrial manager has assumed 
such great importance and has become so distinctive in 
character, that his part in production and his share in dis- 
tribution merit separate consideration. 



The Theory of Profits 287 

The monopoly power of the entrepreneur and its effect on 
prices have already been considered. Should this monop- 
oly power increase and should prices continue to be forced 
above a competitive level, much of the income of society may 
be converted into the profits of the entrepreneur. ^^^^^ r 
There is little doubt that, to a certain extent, this monopoly 
has taken place; and that, should it continue, 
the share that goes to profits in the general distribution of 
wealth would grow at the expense of some other share in 
distribution. 

TOPICS FOR CLASS DISCUSSION 

1. What are the chief elements in business success ? 

2. Do unsuccessful employers pay less wages than those who make 
large profits ? 

3. What is the effect of competition on profits ? 

4. What devices do entrepreneurs sometimes employ to escape 
competition ? 

5. What do you think has been the basis of most of the more re- 
cently acquired large fortunes in this country ? 

6. The syndicate which underwrote the securities of the U. S. 
Steel Corporation is said to have made over $40,000,000. Was that 
profit ? Do you think it was earned ? 

7. Are the profits of a business man a good measure of his service 
to society in the production of wealth ? 

8. Do profits tend to an equilibrium as between different individ- 
uals ? Different occupations ? Different places ? 

9. Is a restriction of profits ever justifiable ? 

REFERENCES 

The Distribution of Wealth — J. B. Clark. 
The Theory of Prosperity — S. N. Patten. 
Principles of Economics — Alfred Marshall. 
Principles of Economics — E. R. A. Seligman. 
Theory of Business Enterprise — T. Veblen. 



CHAPTER XXXVI 

The Theory of Wages 

I. Nature of wages 

1 . Meaning of wages : 
a. Money wages 

h. Real wages 

2. Importance of money wages 

3. What the term includes 

11. Groups of laborers 
I . Four main classes : 
a. The leaders 
h. The business and professional men 

c. The skilled laborers 

d. The unskilled workers 

III. What determines group wages 

1. Productive power : 

a. Meaning of productivity' 
h. Importance of this principle 

2. Monopoly power : 

a. Its ineaning and use 
h. How wages vary with it 

3. Why group wages are stable : 
a. The progressive advance 
h. Children move up 

4. The conclusion. 

Nature of Wages. — In the discussion of the distribution 
of wealth, the term " wages " is used to represent the share 
that labor receives for its part in production. The word is 



The Theory of Wages 289 

so universally employed to designate this reward of labor 
that it is seldom one stops to consider the significance of 
the modern method of wage payment. Money, Meaning 
of course, is to-day the most usual form in which °^ wages, 
wages is paid. However, we have seen that money wages 
is not the same as real wages, which represents the purchasing 
power of the money. And, if there were no money, there 
would still be wages because labor would still produce and 
be entitled to a reward for its part in production. In this 
case, wages would be received in the form of actual products. 

But labor, to-day, is not paid in the form of actual prod- 
ucts. Everywhere we find labor not receiving what it 
actually produces, but being paid in the form of money. 
Why, then, has it become necessary for society to adopt this 
uniform wage system for the payment of labor? importance 
The productive processes of modern society are of money 
highly complicated. There is no longer a simple, 
direct relation between labor and the materials of produc- 
tion ; and, consequently, the laborer no longer receives the 
actual goods he creates. A great intermediate class, known 
as employers, has grown up in industrial society. This class 
owns the tools of production, offers the laborer employment, 
takes what he produces, and, in exchange, gives him, through 
a uniform wage system, a certain sum of money called wages. 
The payment of money wages, however, should not ob- 
scure the real relation between labor and the product it 
creates. 

Another important consideration to bear in mind in a 
discussion of the nature of wages is the inclusive character 
of the term. Not merely physical laborers receive wages. 
Since wages is the return for industrial effort, the term applies 
to the rewards of all forms of industrial activity, whether 



290 Elements of Economics 

mental or physical. We have seen that even profits, the 
return for managing ability, is a form of wages because the 
What the manager is essentially a laborer. At the same 
term in- time, the office boy receives wages in return for 

eludes 

his labor. In fact, in the United States, prac- 
tically all of those gainfully employed are working for 
wages, so that the population of the United States may well 
be described as a " wage-earning " group. 

Groups of Laborers. — Since wages include the incomes 
of so many different laborers, it is necessary to classify these 
laborers in order to understand the reasons for the differ- 
ences in the wages they receive. In the first class are the 
Four main leaders, — those men of such phenomenal power 
classes. ^1^^^ ^j^gy attract attention ever5rwhere. While 
they are not necessarily confined to the class of industrial 
entrepreneurs, it is here that they are chiefly found. Next 
to these, come the large body of successful business and pro- 
fessional men who stand out prominently in every commu- 
nity. Physicians, lawyers, and educators, as well as mer- 
chants and engineers, may be included in this group. The 
next class of laborers is made up of the great mass of skilled 
workers that have received some form of special training. 
Not only mechanics but also trained clerks and bookkeepers 
are members of this class. Finally, there is the horde of 
unskilled workers that range all the way from the house-to- 
house canvasser to the immigrant street cleaner. These 
last two classes merge imperceptibly into each other, and the 
laborers forming the connecting link are often spoken of as 
semi-skilled workers. 

These different classes of laborers naturally increase in 
number, but decrease in importance, as they go downward 
from one group to another. 



The Theory of Wages 291 

What determines Group Wages. — At the outset, it 
will be noticed that the wages of group (i), the leaders, 
will be as great as their number is small, and that the wages 
of group (4) , the unskilled workers, will be as small as their 
number is great. Consequently, many writers Depends on 
have taken the position that wages depend upon productive 

P0W6r ! 

the relation between the supply of labor and the 
demand for it. But this explanation of wages does not reach 
the heart of the problem. Why should the supply of certain 
kinds of labor be small, and why should the demand for 
them be great ? • The answer to this question will give the 
fundamental reason why wages vary. 

In the first place, it is evident that men of high productive 
capacity can command high wages. This kind of labor is 
in demand because its productive power is great and its 
supply is limited. The principle of productivity in this 
case plays the dominant part in determining the Meaning 
wages that such a group of men receives. By of produc- 

1 . . . 1 . 1 • 1 tiviiy. 

productivity is meant the creative power which 
individuals possess in varying degrees and whereby they 
are able, either directly or indirectly, to produce material 
wealth. On all sides there are evidences of this kind of 
capacity. 

Throughout the whole theory of wages, this principle of 
productivity must be constantly kept in mind. In fact, it 
forms the foundation of the general theory of distribution. 
Not only labor, but also capital, depends upon j,nportance 
productive power as a basis upon which each of this 
may claim a share in the distribution of wealth. 
As Professor H. R. Seager points out, " the law which de- 
termines the division of the product between labor and 
capital in competitive industries for a society in a state of 



292 Elements of Economics 

normal equilibrium is that each receives the share that it 
produces." If labor did not produce anything, it would not 
be entitled to anything. The principle of productivity thus 
gives rise to the idea of merit, and man feels that he is re- 
ceiving what he deserves. Labor is entitled to wages be- 
cause it has played a vital part in producing wealth. But 
to-day, in the absence of a purely competitive regime, 
does labor receive exactly what it produces? Does the 
principle of productivity, and this principle alone, determine 
under present conditions the wages of a group of laborers? 
While, for example, it is true that men of great productive 
power command large wages, yet it seems equally obvious 
that men sometimes receive more or less wages than their 
capacities warrant. 

The wages of any class of labor seems to depend not 
only upon its productive power but also upon its monopoly 
power. The more monopoly power a group has the higher 
Depends on will be its wagcs. Monopoly power has already 
monopoly been defined as some unusual power that enables 

power : ^ _ _ 

Its mean- the holder to fix a price above the competitive 
ing and use. figure. It is frequently exercised by the entre- 
preneur when he controls prices without regard to the laws 
of competition. This unusual power may also be exercised 
in behalf of labor either individually or collectively. Either 
by acquiring some special abihty, or by securing power 
through organization, a laboring class may regulate the 
price of its labor and command its wages without any 
absolute regard to the actual value of the product. In both 
cases, through an unusual control over labor resources, mo- 
nopoly power, in addition to productive power, determines 
the wages paid to labor. 
This dependence of wages on labor's monopoly power is 



The Theory of Wages 293 

seen when we examine the monopoly power of each class of 
laborers. Enough has been said of the great monopoly 
power of the leaders in industry and of its effect on their 
income through the control of prices. At the other extreme 
we have the class of unskilled labor with minimum wages and 
practically no monopoly power, that is, no unusual power to 
control wages. Because of this absence of How wages 
monopoly power, the cost of subsistence is prac- ^^j^^^*; 
tically the only determinant of wages for this power. 
group of laborers. Above them, the skilled laborers are 
much better off, because their monopoly power is increased 
both by individual skill and by group organization. The 
group of successful business and professional men have still 
greater monopoly power (secured largely through individual 
effort) and therefore command still higher wages. Thus it 
may be seen that in all these cases group wages vary not 
only with productive power, but also with monopoly power. 
This principle determining group wages applies likewise to 
individual wages. 

In a discussion of group wages there is another question 
that naturally arises. Why are group wages more or 
less stable? That is, why does the wage of the unskilled 
laborer remain approximately at ten dollars per week and 
that of the skilled worker at twenty dollars per „„ 

-' ^ Why group 

week ? The answer to this question is clear. The wages are 
progressive members of one group advance to ^^^ ^' 
the next higher, thus relieving an undue pressure of numbers 
in the group below. For example, the great influx of immi- 
grants, who have joined the ranks of unskilled labor in this 
country, has forced the American unskilled worker to seek 
some special training fitting him for more skilled labor. His 
standard of living will not submit to the low wage that for- 



294 Elements of Economics 

eign labor accepts. Thus the progressive who move up 
make way for the newer ones who come in. At the same 
time, the children of skilled and unskilled laborers, who are 
dissatisfied with the economic position of their parents, 
frequently move up to the class of business or professional 
men. This general advance, therefore, from one group to 
another, brought about by the movement of the more pro- 
gressive and younger elements, results in a general mobihty 
of labor whereby overcrowding in one group is minimized 
and the wages of the various groups remain more or less 
stationary. 

From this presentation of the theory of wages, it will be 
observed that two factors — productivity and monopoly 
power — are of prime importance in determining. the wages 
The conciu- of a given group or of a particular individual. If 
sion- it were not for productivity, there would be no 

wages, and if it were not for monopoly power, wages would 
not be what they actually are. Under ideal conditions of 
pure competition the productivity principle would be 
sufficient to explain wages in any given case. Each individ- 
ual would receive as wages that which, in competition with 
others, he produced. But when competition is checked, as 
to-day it actually is, the amount of wages that a group or 
an individual can command depends almost as much upon 
his monopoly power, that is, his unusual power to control 
the price of labor, as upon his productive power, that is, the 
wealth he actually produces. 



The Theory of Wages 295 

TOPICS FOR CLASS DISCUSSION 

1. What was the wage fund theory ? 

2. What was the "Iron Law of Wages" ? 

3. Who was Mai thus ? What did he teach ? 

4. What interest have the rich in an abundance of labor ? 

5. What is meant by the "sweating system" ? 

6. What is the effect of free public schools on the comparative 
wages of skilled and unskilled laborers ? 

7. Speaking generally, does the laborer gain or lose by working 
under conditions of abundance of land and capital ? 

8. If a factory town is destroyed by fire, will wages throughout the 
country at large rise or faU ? 

9. Make a list of the factors affecting the demand for street 
cleaners in Chicago ; a physician in a small town ; a barber. 

10. What would you have to pay a cook in an Alaskan gold-mining 
camp? 

11. In your own individual case, what do you think wiU determine 
your wages in after life ? 

REFERENCES 

Principles of Economics — F. A. Fetter. 
Introduction to Economics — H. R. Seager. 
The Wages Question — F. A. Walker. 
The Distribution of Wealth — J. B. Clark. 
The Theory of Prosperity — S. N. Patten. 



CHAPTER XXXVII 

The Outlook for Distribution 

I. Labor's monopoly power 

1 . Individual monopoly power : 
a. Acquired capacity 

h. Inherited capacity 

2. Group monopoly power : 
a. Its meaning 

h. An example 

c. Where it is developed ■ 

d. How it may be exercised 

3. The outlook in the United States 

11. Labor's power of substitution 

1 . From standpoint of consumption : 
a. Meaning and examples 

h. The consequence 

2. From standpoint of production : 
a. Meaning of mobility of labor 
h. Examples of this mobility 

3. Double effect of this power on labor : 

a. As producer 

b. As consumer 

III. Relative rates of increase of the factors in production 

1. Importance of rate of increase 

2. Conditions in the United States: 
a. In regard to capital 

h. In regard to land 
, c. In regard to labor 
d. How labor profits 

3. General conclusion 

296 



The Outlook for Distribution 297 

In concluding a discussion of the theory of distribution, 
it is important to understand the probabihty of the differ- 
ent shares of wealth increasing or diminishing. From the 
standpoint of individual welfare, the future of labor is espe- 
cially significant because the great mass of people depend 
altogether upon wages for their support and material happi- 
ness. In determining what chance labor has of increasing 
its share in the general distribution of wealth, it will be 
found that much will depend (i) upon the growth of labor's 
monopoly power, (2) upon the exercise of its power of sub- 
stitution, and (3) upon its rate of increase as compared with 
that of the other factors in production. 

Labor's Monopoly Power. — In the lowest group of 
laborers we have seen that there is practically no monopoly 
power and that competition fixes the wage almost at the 
minimum of subsistence. In all the other groups, however, 
monopoly power plays a great part in determining the upper 
limit of wages and is manifesting itself in an increasing 
number of directions. The monopoly power of the laborer 
may be exercised either individually or collectively. The 
individual may possess this unusual control over individual 
labor either as a result of special training, or by monopoly 
reason of some inherited tendency that has been ^°'^^^' 
developed and cultivated. For example, the man who has 
made a particular study of the textile business at home and 
abroad, and who has also made a close study of business 
detail and knows how to manage large numbers of men, 
possesses by reason of his training a great monopoly power. 
This power enables him to command a salary of perhaps ten 
thousand dollars a- year. In a similar manner the man 
who, through inherited abihty and some special training, is 
able to draw striking cartoons and caricatures enjoys such a 



298 Elements of Economics 

great monopoly power that he may be able to command a 
salary of twenty thousand dollars a year. The monopoly 
power of the cartoonist was inherited, while that of the 
manager was acquired ; in both cases, however, it was indi- 
vidual. 

Group monopoly power, on the other hand, is of quite a 
different character. In this case labor relies for its control 
over wages not on great individual power, but on collective 
action. Group monopoly is the power whereby a group. 
Group through organization, is able to control the price 

monopoly of labor and to regulate its own wages. For 
power. example, suppose thirty hodcarriers are working 

for one dollar and seventy-five cents a day; and suppose 
further that there are no other hodcarriers near by, and 
that there is plenty of construction work in the neighbor- 
hood. It occurs to these men that if they unite together 
and demand two dollars a day, they will be able to increase 
their wages. This they do and, by their organization, create 
a monopoly power which enables them to secure the addi- 
tional wage demanded. Among skilled laborers the monop- 
oly power of organization is everywhere in evidence and 
competition plays a secondary part in determining wages. 
This monopoly power may be exercised not only through the 
union and strike method, but also through minimum wage 
laws such as exist in Australia and New Zealand. 

In America there are many evidences of the monopoly 
power of labor. From the standpoint of individual monop- 
The out- oly, the emphasis on education and special 
United training is a most hopeful indication for the 

states. future of labor. Everywhere the necessity for 

increased efficiency is being pointed out and the means of 
securing it provided. At the same time, the monopoly 



The Outlook for Distribution 299 

of organization is becoming more and more powerful. 
Men are beginning to realize how much more can be accom- 
plished by collective than by individual action. Thus, 
through the increase both of individual and group monopoly, 
labor possesses a means of enlarging its share of wages. 

Labor's Power of Substitution. — Another advantage 
that labor enjoys is found in the exercise of its power of 
substitution. This power is simply the abihty of labor to 
substitute one good for another, or one employer for another. 
For example, when the price of oil becomes too high, gas or 
electricity may be substituted. If the price of soap is 
raised, a washing powder may be used. When From 
meat rises to a prohibitive figure, some other oj^^q'^"''^* 
form of proteid diet will take its place. In this sumption, 
manner, by substituting one product for another, the con- 
sumer escapes the extortion of the monopolist, and labor, by 
forcing prices down, gets the benefit of income that would 
otherwise go to the monopolist in the form of monopoly 
prices. Labor's real wages is increased. 

Again, by reason of its mobility and monopoly power, 
labor may substitute one employer for another. By mobil- 
ity of labor is meant the freedom with which labor moves 
from one place to another and from one employer to another. 
In the days of feudalism, the serf was attached From 
to the soil and was prevented from moving of^p^o^^^^ 
from place to place. The peasant was born an duction. 
agricultural worker on a, great estate and there he was 
obliged to live and die. To-day, however, in the United 
States, a laborer moves easily from place to place, and fre- 
quently from one occupation to another. If he is dissatis- 
fied with conditions in one city or in one occupation, he 
seeks employment in another offering him a larger return. 



300 Elements of Economics 

An advancing standard of Kving always impels labor to 
seek that industry or locality where it will receive its greatest 
reward. The labor union, through its monopoly of organiza- 
tion, makes secure this higher standard of living when it is 
once attained. This mobility of labor naturally results in 
more or less uniformity of wages within the same general 
group of laborers ; but, nevertheless, there is just enough 
difference in wages to cause labor to substitute one employer 
for another. This power of substitution may be used against 
Double the employer and in favor of labor because, by 

thirpower ^eason of the growth of labor organization, the 
on labor. employer himself cannot substitute, as freely 
as in former days, one laborer for another. As a producer, 
therefore, labor may use the power of substitution, in con- 
junction with its monopoly power, to regulate its own wages ; 
while, as a consumer, labor may use this same power to 
increase its income by preventing the entrepreneur from 
fixing prices at the monopoly point in order to swell his own 
profits. 

Relative Rates of Increase of the Factors in Production. — 
Still another element favorable to the increase of wages is 
found in the relatively slow rate at which labor increases 
when compared with the other factors in production. In 
order that the wages of labor may increase, the value of its 
share in the general distribution of wealth must, of course, 
Importance bccome greater. Now as Professor S. N. Patten 
of rate of has shown, the value of the share of any factor 
in production, — whether land, labor, or capital, 
— depends, so far as these factors alone are concerned, upon 
its rate of increase as compared with that of the other 
factors in production. Scarcity plays an important part in 
determining the value of labor just as it does in determining 



The Outlook for Distribution 301 

the value of gold or silver. If gold, for example, is scarce, 
its value will be great; while if plentiful, its value will 
decrease. Just so it is with labor. If labor increases at a 
relatively slow rate, its value as measured in wages will be 
great ; while if its rate of increase is relatively rapid, its 
value will decrease. 

Now, in the United States, during the past century, there 
is little doubt concerning the relative rates of increase of 
land, labor, and capital. Capital has increased conditions 
so enormously that the rate of interest has in United 

Sta.tes 

steadily declined. Through wonderful improve- 
ments in agriculture, land has likewise yielded a greater 
and greater return. However, labor, the remaining factor 
in production, has increased at a rate which is slow when 
compared with capital's rate of increase or land's rate of 
increase. To-day, evidence of labor's slow rate of increase 
is frequently found in utterances against " race suicide." 
Therefore, since labor's rate of increase has been slower than 
that of capital or land, it is fair to conclude that its share of 
wealth has increased at a proportionally greater rate than 
that of capital or land. From this point of view, therefore, 
labor may be said, broadly speaking, to have received the 
greatest benefits from production. 

Briefly the problem of distribution may be thus summa- 
rized : Rent is paid to the landlord because of his control 
over natural resources. Interest goes to the capitalist in 
return for the use of capital in industry. Profits is paid to 
the entrepreneur because of his special ability and the risks 
he undertakes. Wages, finally, is paid to the General 
laborer in return for industrial effort and in conclusion, 
proportion to his productive and monopoly power. 
But, while all these shares are thus divided up in 



302 Elements of Economics 

theory, they are not always so separately distributed in 
practice. One individual, by representing several factors 
in production, may receive several shares in distribution, 
while another individual may receive but one share. In 
America, this may be slowly taking place. Broadly speaking, 
the laborer usually receives only one of these shares — 
wages — while the entrepreneur frequently takes the rest. 
As American society evolves, the landlord controlling natu- 
ral resources, the factory owner controlhng capital, the 
entrepreneur taking risks, and the monopolist controlling 
prices, all tend to become the same person. Through large 
scale production, one business interest may control all the 
important processes of industry from the raw to the finished 
product, and take into one treasury the different incomes 
from several distributive channels. 

TOPICS FOR CLASS DISCUSSION 

1. What reasons can you offer to explain why the wages of women 
are generally lower than the wages of men ? 

2. What conditions fix the maximum and minimum limits to the 
rate of wages in a particular case ? 

3. What connection is there between the American rate of wages 
and American labor-saving devices ? 

4. By what methods is labor increasing its monopoly power ? 

5. Name the factors in modern society which increase the mobility 
of labor. 

6. What effect should the increased mobility of labor have on 
wages in different sections of the same country ? 

7. Ordinarily an increased demand for a commodity which is not 
absolutely limited in amount will result in an increased supply. To 
what extent would this be true of laborers ? Of labor ? 

8. Cite cases of monopolistic limitation of the supply of labor. 

9. Explain the operation of the power of substitution. 

10. What factors limit the power of the entrepreneur to fix wages ? 



The Outlook for Distribution 303 

REFERENCES 

The Theory of Prosperity — S. N. Patten. 
The Distribution of Wealth — J. R. Commons. 
The Theory of Dynamic Economics — S. N. Patten. 
The Labor Movement in America. — R. T. Ely. 
The Distribution of Wealth — J. B. Clark. 



PART VI 
ECONOMIC EXPERIMENTS AND PROGRAMS 

CHAPTER XXXVIII 

Experiments of the Employer 

I. Profit sharing 

1. Its meaning 

2. Its different forms 

3. Experiments in the United States : 
a. Some examples 

h. Causes of failure : 
(i) Mobility of labor 

(2) Number of unskilled workers 

(3) Lack of means 

11. Welfare work 

1. Its meaning 

2. Its origin 

3. Recent improvements : 

a. In factories 

b. In stores and railways 

4. Its future 

III. Philanthropic work 

1. Its chief problems : 
a. Relief of poverty 

h. Maintenance of unfortunates 

c. Prevention of distress 

2. Its legislative program : 

a. Improved working conditions 

b. Better living conditions 

304 



Experiments of the Employer 305 

c. Purer diet 

d. More recreation facilities \ 

e. Practical education 
3. The conclusion 

A study of economics would not be complete without a 
discussion of the leading economic experiments and programs 
that have, as their common purpose, the improvement and 
betterment of the life of the individual and of the com- 
munity. 

Profit Sharing. — This attempt to improve the condition 
of the laborer originates with the employer either from a 
sense of duty or because he believes he will himself be the 
ultimate gainer by this poHcy. The system of profit 
sharing guarantees the worker, in addition to regular 
wages, a specified share of the profits of the business. In 
other words, it presupposed the payment of ^ 

Its meaning. 

wages, and then shares the net pronts with the 
workers in a cer'tain predetermined proportion, — the em- 
ployer voluntarily giving up part of his profits in order that 
the laborers under him may participate in their enjoyment. 
The simplicity of profit sharing is greatly in its favor. 

Profit sharing usually takes one of the three following 
forms : (i) the employee participates in the ownership 
of the stock ; (2) the employee (chiefly in England and the 
United States) is given a cash bonus in propor- its different 
tion to his wages and year's labor; (3) the em- ^o^ms. 
ployee enjoys a system of deferred participation in profits. 
Under this last-named system each year a percentage of the 
profits is credited either to the entire body of employees or 
to specific employees. In cases where the percentage is 
credited to employees as a unit, profit sharing takes the 
form of a provident fund. In order to share in this fund, 



3o6 Elements of Economics 

the employee must be sick, injured, or in some other condi- 
tion of need. In cases where profits are credited to employ- 
ees individually, each receives his share either when he 
attains a specified age, or when he has remained a certain 
time in the establishment, or when he suffers an unusual 
pressure from sickness or accident. Tliis system, exten- 
sively employed in France, has received Kttle encourage- 
ment in English-speaking countries. 

While profit sharing has met with a rfteasure of success 
in Europe, it is not looked upon with general favor in the 
United States. The A. S. Cameron Company of Jersey 
City operated a fairly successful profit sharing scheme 
Experiments beginning in 1869 and lasting until the death of 
in United Mr. Cameron. A similar experiment of the 

Stntes ' • ^ 

Brewster Carriage Company of New York 
inaugurated in 1870 was abandoned in 1872 when the work- 
men " struck " for an eight-hour day. 

There is only one instance of a profit sharing scheme 
surviving any considerable length of time in the United 
Some States — that of the Peacedale Manufacturing 

examples. Company, whose successful organization of 
profit sharing dates from 1878. This plan is not a full- 
fledged system of profit sharing. No set proportion of 
net profits is paid, nor is there any obligation on the part 
of the firm to pay any bonus^ During some years, however, 
as much as five per cent on the wages has been paid. In other 
years, when the business conditions did not seem to warrant 
it, nothing has been granted. The N. O. Nelson Company, 
manufacturers of plumbing goods, pays its employees a 
bonus in stock. On the whole, the American experiments 
have been on a small scale, few in number, and in only a few 
cases have they adopted a true profit sharing system. 



Experiments of the Employer 307 

The failure of profit sharing in the United States may be 
variously explained. To begin with, from an American 
standpoint, the system of sharing profits through deferred 
payments has an obvious disadvantage. It im- causes of 
plies that a given employee will remain under one /'^^^«''«- 
employer for a long period of time. In America, we have 
seen that this is frequently not the case. Labor is mobile, 
moving from place to place and from occupation to occupa- 
tion. This mobility of labor is one of the means employed 
for its betterment. Seldom do men remain twenty years 
under one employer. A system of deferred payments, 
however, works on the principle that men will devote their 
whole lives to one employer. 

Again, this system works best in trades where workmen 
are highly skilled and intelligent. In the average American 
industry a common labor group is coming more and more 
rapidly to the front. This group works with its hands and 
neglects its head. The deferred payment system would 
not appeal strongly to its members. At best, business is 
uncertain ; and the average employee does not relish the 
idea of working on the deferred payment plan for a firm 
which may become insolvent at any time and in this 
manner deprive him of the chance to share in the fund of 
profits. 

The system of sharing profits with employees by means 
of shares, and by requiring them to be owners of the 
company's stock before they are allowed to share in the 
profits, has some serious drawbacks. The latter plan, par- 
ticularly, is well-nigh out of the question for the lower 
grade of wage worker who has a family dependent on him. 
He needs every penny, and it is difficult for him to secure 
the funds to purchase the stock. If, however, he does 



3o8 Elements of Economics 

succeed in participating in stock benefits, his interest will 
naturally be centered in that particular business so that his 
freedom of action is curtailed. In fact, this whole system 
of profit sharing is paternalistic and opposed to the character 
of the American workman. 

Welfare Work. — • Another economic experiment, much 
less fundamental though far more common than profit 
sharing, is welfare work. This is defined by Professor John 
R. Commons as " all of those services which an 
employer may render to his work people over and 
above the payment of wages." Employers have always 
done some welfare work, but until recently such efforts 
were practically unknown to the general public. 

With the advent of the National Cash Register Company, 
however, and its attempts to provide abundantly for the out- 
side wants of its employees, attention was widely attracted 
to the good results of welfare work. This com- 

Its origin. . 

pany, employing many skilled and highly efficient 
men and women in the manufacture of a very compHcated 
machine, decided that it would be advisable to adopt every 
means to develop their interest in the company and to make 
more efficient workers out of them. In order to carry out 
this design, sanitation was bettered and factory conditions 
were improved in many directions. 

Within the past few years, factory construction has 
been revolutionized. The old style factory was a building. 
Recent im- The new Style factory is a factory, planned to 
provements: serve that definite purpose. When the old fac- 
in factories. ^Qj-jgg ^gj-g built, men wanted a building in which 
their employees could congregate and work. The progressive 
modern manufacturer builds a structure calculated to fit 
the pecuHar needs of his business and, in addition, makes 



Experiments of the Employer 309 

every provision for the health and safety of his employees. 
In pursuance of this idea, he provides sanitary and comfort- 
able houses, kindergartens, schoolhouses, amusement halls, 
churches, insurance funds, cooperative stores, and means 
of recreation after factory hours. 

The factory does not furnish the only instance of welfare 
work. The modern department store is adopting rest 
rooms and improved lavatories; and providing j^ stores 
schools, reading clubs, military organizations, and raii- 
singing societies, and many other forms of social '^"'^^' 
gatherings for the benefit of the employees. The railroads, 
too, have done much good by providing "bunk" houses for 
employees when they are at the end of " runs " and away 
from home. The men under such circumstances often 
have no convenient place to go. The railroad, by furnish- 
ing sleeping rooms, amusement rooms, books, and other 
attractions, thus provides for the material comfort and wel- 
fare of its employees. 

Undoubtedly the greater part of welfare work is carried 
on for purely business reasons. Employers have found that 
it pays. Some men, however, who enjoy very great- 
advantages, are able to carry on welfare work among 
their employees with a philanthropic end in view. But 
for the great majority of employers this is im- 
possible. The feeling in favor of welfare work 
is undoubtedly spreading and, whatever one may think of 
the objects underlying its establishment, its results are 
certainly advantageous to both parties. Like profit shar- 
ing, welfare work depends upon the employer for its initia- 
tion and success. But unlike profit sharing, welfare work 
has taken a strong hold in the United States, and constitutes 
oiie of the modern divisions of great industrial undertakings. 



3IO Elements of Economics 

Its success rests primarily upon the fact that it is regarded, 
not as philanthropy, but as a means of increasing efficiency. 

Philanthropic Work. — Closely connected with employers' 
experiments in behalf of labor are the efforts of philanthro- 
pists and social workers to improve the condition of unfor- 
tunate members of society. While, the philanthropist is 
not necessarily an employer, yet his fundamental interest 
in social and individual welfare merits careful consideration 
Its prob- in. a study of the attempts to better the condition 
lems: q£ |.]^g great mass of laboring people. His work 

resembles that of the employer in that it is a form of outside 
assistance rendered to those in need of unusual help! The 
problems of philanthropy are usually concerned with 
(i) the relief of poverty, (2) the maintenance of unfortunates, 
and (3) the prevention of distress. 

ReHef of poverty is the ordinarily accepted duty of 
philanthropy. The soup kitchen, the bread line, the char- 
ity society, — feeding the hungry, clothing the needy, and 
giving aid to social outcasts, — are looked upon as legitimate 
forms of philanthropic activity. Such matters, however. 
Relief of occupy but a comparatively small part of the 
poverty. attention of modern philanthropists. Some im- 
mediate aid is given to the needy, but the aim of philan- 
thropy is the elimination of the causes which produce the 
needy. This kind of relief is secured not so much through 
the almshouse as through the hospital, the sanitarium, and 
similar institutions. The reUef afforded in this 'manner has 
been ver}?" great. In fact, curative work in hospitals and 
sanitariums has become so extensive and effective of late 
years that the ravages of many diseases, like tuberculosis, 
have been greatly reduced. 

Social unfortunates are usually classed as defectives or de- 



Experiments of the Employer 311 

pendents. The problem of maintaining defectives, — feeble- 
minded, epileptics, and those afflicted with incurable dis- 
eases, — is essentially one of segregation. It is of prime 
importance that such persons be kept away from their 
fellow-men. This is necessary either to prevent contagion, or 
to stop transmission, or to prevent the bur- j^^i^^g. 
den of support from falling on those incapable name of 

J. 1 • ■, rpii !• 1 •! J.1 • i. unfortunates. 

of bearmg it. iherefore, philanthropy aims to 
provide institutions for the care of these persons. Depend- 
ents, on the other hand, need more or less temporary 
support. Usually they are children or old persons, and 
therefore their period of dependence cannot continue for 
any great length of time. They are cared for either because 
they have a career of work before them or one behind 
them. 

The philanthropy of most value to society, however, is 
that which concerns itself with the prevention of dependency, 
defectiveness, and delinquency. Why is this family unable 
to live decently? Because the father never pj.g^gntion 
learned to work ef&ciently. Then let society of distress. 
prevent the reappearance of such a family by educat-- 
ing this man's sons to be efficient workers. Why is 
this child feeble-minded? Because its ancestors have been 
feeble-minded for generations. Then it is high time that 
some steps be taken to stop the transmission of such a defect 
in this family. Here is a boy who has been committed to 
jail for stealing. He has never been well fed ; he has played 
truant for years ; his home is in a filthy alley ; and he has 
never known the meaning of decent living conditions. 
Surely some steps should be taken to prevent the recurrence 
of such a disastrous life. Constructive philanthropy, 
therefore, undertakes the solution of these problems and, 



312 Elements of Economics 

by prevention, aims to secure permanent improvement in 
social conditions. 

While these are the problems in which philanthropy is 
primarily interested, what are the means it employs for 
their effective solution ? It is evident that individual effort 
is not sufficient to accomplish the results desired by the 
philanthropist and social worker. How can a single indi- 
vidual, even with fabulous wealth, relieve poverty, maintain 
unfortunates, and prevent distress? Evidently he must 
rely upon the help of society. This help he secures in the 
itsiegisia- form of social legislation. The lawmaker aids 
tive pro- the social worker to attain his ideals. ■ Thus 
philanthropy attempts to improve undesirable 
social conditions by securing legislation deahng with (i) 
working conditions, (2) living conditions, (3) purity of food 
and drink, (4) recreation, and (5) education. 

In America, legislation concerning working conditions 
has confined itself largely to the passage of laws regulating 
the labor of children, the hours and working conditions of 
women, and the safety of workers. Under the American 
system of government, the adult male worker is frequently 
Improved denied legislative protection on the ground 
working that he is free to contract as he pleases. After a 

conditions. -, -i i . ^ • ^ 

laborer once chooses to work m a dangerous or 
unhealthful trade, he takes upon himself the responsibiHty 
for any danger that may attach to the trade. Certain ex- 
ceptions, however, have been made to this general rule. For 
example, government work is generally done under the eight- 
hour system. Again, the Utah eight-hour law decision 
handed down by the United States Supreme Court estab- 
lishes the principle that in the exercise of the police power, 
under which the government protects the health and 



Experiments of the Employer 313 

morals of the people, the hours of work may be limited in 
trades where long hours would injure health. 

Living conditions in the United States have, in the past 
two decades, aroused, considerable attention among philan- 
thropists and social workers. This is particularly true of 
New York City, where six- and seven-story tenement houses 
create a congestion problem of the most acute type. But, 
while insanitary living is primarily a problem of Better living 
the immigrant, the recent investigations in conditions. 
Pittsburg have shown clearly enough that Americans as well 
as foreigners are living in unhealthful surroundings. The 
most casual observer of living conditions in certain districts 
of great cities must conclude that efficiency cannot be main- 
tained until some effective effort is made to improve hous- 
ing conditions. Such efforts are being made in all of the 
larger American cities and, in some of them, with consider- 
able effect. 

The federal Pure Food and Drugs Act has put a very 
effective check upon the adulteration of food and drink. 
Up to the time of the passage of this act adulteration had 
been widespread but, with its passage, has come a complete' 
revolution in the attitude, not only of the public, 
but also of the manufacturer, toward food adul- 
teration. Instead of trying to avoid the law, the progressive 
manufacturers have prominently advertised the fact that 
they conform to all its provisions. Thus the manufacturers 
themselves have made the law effective. 

In providing means for play, Chicago leads all American 
cities. Other large cities have likewise provided playgrounds, 
school gardens, parks, and recreation piers, on More re- 
the supposition that the juvenile court can be '^''^a'^o^- 
replaced most effectively by more recreation facilities. 



314 Elements of Economics 

After all, however, the philanthropist must do his most 
lasting work along educational lines. No reform can be 
effective which is not based upon education. Hence the 
Practical advocatcs of social legislation are devoting their 
education. efforts to the upbuilding of schools, newspapers, 
magazines, theaters, and other agencies which affect the 
public mind. Obviously the most fundamental work in 
this direction must be done through the public school sys- 
tem. Great improvements in social conditions must neces- 
sarily follow the development of a progressive type of public 
education. 

These various experiments to help labor and to improve 
social conditions are alike in certain fundamental respects. 
The employer sharing his profits with the laborer ; the fac- 
tory owner improving the conditions under which men and 
The con- womeu work ; and the philanthropist securing 
elusion. social legislation favorable to the worker, — all 
have the same end in view, the ideal of individual and 
social welfare. There is also a general uniformity in the 
character of the help extended to society by these different 
agencies. It is always in the form of outside assistance. 
It springs, not from labor itself, but from sources outside 
of labor. There are, however, various ways in which labor 
may help itself. 

TOPICS FOR CLASS DISCUSSION 

1. What are the different methods of sharing profits ? 

2. Which of these is the most successful ? 

3. What has been the success of profit sharing in the United States ? 

4. What is the attitude of the average employer toward profit 
sharing ? 

5. What attitude does the public take toward profit sharing ? 



Experiments of the Employer 315 

6. What is the outlook for profit sharing in the United States ? 

7. Do you expect profit sharing to become general in the United 
States ? 

8. Have you any criticism against the principle of profit sharing ? 

9. What is welfare work ? 

10. Investigate the systems of welfare work which have been 
adopted by local employers. What are their strong points ? Their 
weaknesses ? 

11. If you were managing a department store, what welfare meas- 
ures would you adopt ? 

12. What future has welfare work ? 

13. What is the scope of philanthropic work ? 

14. What has philanthropy accomplished ? 

15. What is its future ? 

16. Can you make any general observations concerning the like- 
nesses of these experiments of the employer ? The differences ? 

REFERENCES 

Labor Problems — Adams & Sumner. 

Social Insurance — H. R. Seager. 

Profit Sharing between Employer and Employee — N. P. Oilman. 

Social Forces — E. T. Devine. 

Eflacient Democracy — W. H. Allen. 



CHAPTER- XXXIX 

Experiments of the Worker 

I. Experiments in cooperation 

1. Its usual forms : 

a. Cooperative banking 

b. Cooperative consumption : 
(i) Its English origin 

(2) Its American development 

(3) Its advantages 

(4) Why it has failed 

c. Cooperative production 

2. Outlook for cooperation 

II. Modern unionism 

1 . Character of unionism : 
a. Its significance 

h. Its national character 
c. Its industrial character 

2. Program of unionism : 
a. Higher wages 

h. Shorter hours : 

(i) American conditions 

(2) Reasons for shorter hours 

c. Better working conditions 

3. Weapons of unionism : 
a. The trade agreement 
h. The strike : 

(i) Effects on labor 

(2) Effects on employer 

(3) Effects on the public 
c. The boycott : 

(i) Its meaning 

(2) Its different forms 

4. Outlook for unionism 

316 



' Experiments of the Worker 317 

Experiments in Cooperation. — The worker himself has 
made frequent efforts to improve his own condition. The 
American's spirit of independence has manifested itself in 
initiating various experiments for his own betterment with- 
out depending upon help received from the em- its usual 
ployer or from the public. One attempt in this forms: 
direction has been in the form of cooperation. From this 
standpoint, cooperation means the association of persons 
for the purpose of joint economic effort. Cooperative 
enterprises usually assume one of three forms, (i) coopera- 
tive banking, (2) cooperative consumption, and (3) coopera- 
tive production. 

Cooperative banking is an attempt to secure certain 
financial benefits through associations of individuals in the 
form of insurance companies, or building societies, or fra- 
ternal organizations. From the organization of cooperative 
the first Mutual Fire Insurance Association in ^<^nktng. 
1752, the growth of this kind of cooperation has been rapid 
in the United States. To-day it is everywhere preva- 
lent in the form of assurance societies, building associations, 
lodges, and fraternal societies. The chief purpose of such' 
latter organizations is, of course, to pay certain benefits in 
case of death, accident, and sickness. 

Cooperation in consumption is the association of indi- 
viduals for the purpose of securing certain advantages in the 
purchase of goods. The cooperative store is a good example 
of this kind of cooperation. This economic ex- conpera- 
periment had its origin in England among a few tive con- 
poor weavers of Rochdale, who contributed to ^"''^ ^°^' 
the purchase of a bag of flour. By this means, retail quan- 
tities of flour were secured at wholesale prices. From this 
small beginning the cooperative movement in England has 



3i8 Elements oj Economics 

grown until, to-day, it numbers its members by hundreds 
of thousands. In memory of its originators, the coopera- 
tive society in charge of the system is called the " Rochdale 
Pioneers." 

In America, however, this movement of cooperative con- 
sumption has never attained a hke development. The 
numerous experiments have usually failed to attain any 
great success. For example, in 1845, the first protective 
union store was organized in Boston. A dozen persons 
with " the faith of God in their hearts " purchased a box of 
soap and half a box of tea. From this small beginning 
grew the New England Protective Union, which rapidly de- 
veloped into a large organization with four hundred branches. 
However, dissensions crept into the ranks and, within a 
few years, the association was practically defunct. Simi- 
larly, the " Sovereigns of Industry," which like the " Pa- 
trons of Husbandry " grew to great proportions, made re- 
peated but unsuccessful attempts to adopt the Rochdale 
system at its local centers. Finally, the " Knights of La- 
bor " took the field and declared for cooperative institutions. 
However, little of a definite character was actually accom- 
plished, and the order declined without having greatly ad- 
vanced the cause of cooperation. 

The advantages of consumers' cooperation are quite 
evident. In the first place, the small trader being elimi- 
nated, his profits are deducted from the price of commodities. 
By wholesale buying, a member of the cooperating group is 
able to secure his goods at a much reduced price, or to share 
in a common surplus at the end of the year. Then, again, 
through a knowledge of consumers' needs, and through 
saving in advertising, the expenses of operation are con- 
siderably reduced. It is also apparent that the stores will 



Experiments oj the Worker 319 

be managed, not for profits, but for the good of the com- 
munity. The store, in its turn, is guaranteed a loyal con- 
stituency. 

In view of these advantages, it seems surprising that con- 
sumers' cooperation has not developed more fully in the 
United States. There are four reasons, however, for this 
lack of development. First, the country is so large and the 
interests of the various sections so diverse that it has not 
been possible to develop such a general movement as that 
in Great Britain. In the second place, in the modern Ameri- 
can city, retail stores have been organized on a large basis, 
and a great many of the petty annoyances and petty profits 
of the old retail system have been eliminated. In the third 
place, in the retail business in America, private business 
has proved to have advantages in economy far above those 
possessed by the cooperative business. Finally, American 
producers are strongly organized, and in all probability, by 
refusing to sell goods, would attempt to crush out all co- 
operative undertakings. 

Cooperative production is an association of persons for 
joint production, usually in the field of agriculture or manu- 
facturing. In this experiment, the cooperating parties 
furnish their own capital, and the income from the sales of 
the products is divided among the cooperating producers. 
In America, various unsuccessful attempts have c^^z-era- 
been made in this direction. For example, at one the pro- 
time, the "Sovereigns of Industry" had thirty 
manufacturing establishments with a capital of nearly half a 
million dollars. The ''Knights of Labor" also attempted, 
usually unsuccessfully, to organize various productive 
enterprises, including boot and shoe companies, clothing 
companies, and tobacco factories. On the other hand, 



320 Elements of Economics 

experiments in productive cooperation in creameries have 
been quite successful. All through agricultural districts 
there exist such creameries, managed advantageously on a 
cooperative basis. With this exception, producers' co- 
operation in the United States is a practical failure. The 
reason for this failure is to be found in the difficulty of 
securing capital and good business management for such 
productive enterprises. 

Although the advocates of cooperation regard it as a sure 
solution of many social problems, there seems at present in 
the United States httle real basis for this behef. With the 
Outlook exception of cooperation in such enterprises as 
for CO- building and loan associations, assu,rance soci- 

eties, and fraternal organizations, together with 
the successful consumers' cooperation in England and on the 
Continent, the cooperative system has furnished very little 
ground for belief that it will prove an immediate relief or an 
ultimate remedy for the improvement of the social condition 
of the worker. If cooperation is to furnish an adequate 
remedy, it must succeed in production; and there it has 
signally failed. . 

Modern Unionism. — Because the " union " relies solely 
upon itself to improve labor conditions, it is the most dis- 
Character tinctive instrument that labor employs for its 
° " .^ .1^ ■ betterment. Its real significance lies in the fact 

Its stgnifi- " 

cance. that it is democratic, not paternalistic, and repre- 

sents a voluntary association of equals striving themselves 
to improve their own condition. While the union was origi- 
nally an experiment and still possesses experimental features, 
the movement has grown to such proportions and repre- 
sents such definite demands that, to-day, modern unionism 
is fast constituting an actual program for economic reform. 



Experiments of the Worker 321 

Formerly, unions were local and affected only a particular 
trade. To-day, they are national and embrace representa- 
tives of many trades. In the attempt to nationalize the 
union, the movement was first begun in some one ns national 
trade, such as that of typographical workers. <^^'^'''^<^^e^- 
Gradually, however, it extended to an attempt to organize 
all the workers of the country. Thus, in 1881, the American 
Federation of Labor was established, and it has succeeded 
in affiliating with it the majority of the trade unions of the 
United States. Its success in this great scheme for the 
organization of labor is due to the fact that it allows the local 
unions large powers of control and requires that only the 
greater questions be referred to the officers of the Federation. 

A union which was composed of the workers of one trade, 
such as carpenters or bricklayers, was at j-^^ uidus- 
first called a " trade union." Two great changes trial char- 
that have taken place in the last quarter of the 
nineteenth century have, however, made this term mis- 
representative of present conditions. In the first place, 
through division of labor and specialization in industry, 
trades have been so split up that they no longer exist in their 
old forms. A man is no longer a cabinetmaker, but a 
" gluer," or a " lathe man." Then, again, the influx of 
large numbers of immigrants and the growth of a large class 
of common labor have made it necessary for the trade 
union, if it would succeed, to take into its membership men 
who are not skilled in any trade. For example, the 
union of the United Mine Workers of America includes 
miners, door tenders, dumpers, laborers, drivers, trackmen, 
and other men from various trades. Thus the old " trade " 
union has been transformed into the modern " labor " 
union with a distinctly industrial character. 



32-2 Elements of Economics 

At the present time, the demands of unionism are so 
clearly formulated that they may well be termed a definite 
Program of program. The union's activities are directed 
unionism: chiefly toward the attainment of three ends, 
(i) higher wages, (2) shorter hours, and (3) better working 
conditions. It is also true that the union attempts to raise 
the level of intelHgence among its members and to awaken 
in them a realizing sense of their responsibilities. How- 
ever, the chief emphasis of the union is laid upon higher 
wages and shorter hours of work. 

The effect of the organization of labor upon wages has 
already been discussed in the Theory of Wages. It was 
Higher there seen that, through organizing, labor is 

wages. 2Jq\q ^q dcvclop stroug mouopoly power. Armed 

with this power of group monopoly, labor can, through the 
union, make its demands upon the employer and, by secur- 
ing higher wages, better its condition. The union, through 
its monopoly power, is attempting to secure its proper share 
of the product of industry, and in some cases, as in the build- 
ing trades, has met with marked success. However, in this 
direction the work of the union has only begun. 

Equally important is the demand of the union for shorter 
hours of work. This has been crystallized into the eight- 
hour-a-day slogan, which in some countries, especially 
Shorter Australia, has accomplished notable results. 

hours. However, in the United States ten hours con- 

stitute the average working day, although many industries 
are on an eight-hour basis. Saturday half' holidays are the 
rule in most of the cities and it is becoming more and more 
common to give short summer vacations. It is generally 
conceded that the legislatures have the right to regulate the 
working hours of children and numerous state laws have been 



Experiments of the Worker 323 

passed accordingly. In the case of women, the Supreme 
Court of the United States has recently decided that the 
labor of women can be regulated on the ground of the wom- 
an's physical inferiority. The labor of men cannot be 
regulated unless it can be definitely shown that the health 
and morals of the community are endangered by a continu- 
ance of such labor. 

The reasons for this demand for shorter hours are per- 
fectly obvious. In the first place, there is no longer any 
great necessity for long hours of hard work. In former days, 
when living was precarious, such a necessity did exist, and 
the tradition that life could not be maintained without 
hard work gradually grew up. To-day, labor is struggling 
to break down this tradition. Again, with a proper amount 
of leisure, it is possible to do much more efficient work. 
Shorter hours mean higher efficiency. Finally, the wide 
use of machinery in industry has not only made the output 
greater, but has also caused labor to become more monoto- 
nous and nerve-racking. As a relief from this monotony 
and strain, labor must be given more time for leisure and 
recreation. 

While higher wages and shorter hours result in immediate 
advantages to labor, it is also important that the general 
conditions under which labor works should be improved. 
For this reason, the union makes every attempt to better 
the working conditions and the surroundings of ^^^^^^ ^^^^_ 
labor. Through the efforts of the union, aided ing condi- 
by philanthropists and social workers, legisla- 
tures have enacted many laws against child labor, sweat- 
shops, and other industrial abuses. This legislation has 
proved of benefit, not only to labor, but also to the whole 
community. While, therefore, the main object of union- 



3^4 Elements of Economics 

ism has been to improve the working conditions of members 
of its own group, its benefits have frequently been enjoyed 
by labor in general. 

What means, now, does the union employ to carry out 
this program of higher wages, shorter hours, and better 
Weapons of working conditions ? As a rule, there are three 
umonism: well-defined instruments in the hands of organ- 
ized labor which it may use to accomplish its purpose, — 
(i) the trade agreement, (2) the strike, and (3) the boycott. 
These constitute a trio of powerful weapons. 

The trade agreement, as the name signifies, is simply an 
agreement in a given trade or group of allied trades between 
the employer and the workers. The employer on his side 
The trade makcs a bargain with a committee representing 
agreement. ^]^g workmen on their side. The trade agree- 
ment is thus a collective bargain, and the great majority of 
industries in which unions exist are conducted under such 
collective bargaining. Of course, the success and effec- 
tiveness of this agreement depend largely on a solid body of 
union workers. For this reason, the union naturally de- 
sires a " closed shop," that is, an establishment in which 
only organized labor is employed. On the other hand, the 
employer may desire to be free in his choice of labor. 

When unavoidable friction occurs between the employer 
and the workers concerning the terms of a trade agreement, 
or some equally important matter, the union attempts to 
enforce its demand by means of the strike. The strike is an 
organized cessation of work initiated by the employees for 
the purpose of securing their terms, or of resisting those 
of the employer. It is a revolutionary measure 
and can be justified only by some most unusual 
condition of affairs. Because of its deep and widespread 



Experiments of the Worker 325 

consequences, this weapon should never be employed by the 
union except as an absolutely final reSort to secure just 
demands. 

The effects of the strike are threefold. In the first place 
it affects the worker. By means of it, he may be able to 
force the employer to grant higher wages, or shorter hours, 
or better working conditions. On the other hand, the 
strike may prove a calamity to the average worker. Wages 
stop at once and, while union men may be supphed with 
strike benefits, these are often inadequate to meet the de- 
mands of family Hfe. Then, again, when work is resumed, 
oftentimes the leaders of a strike, and sometimes the strikers 
themselves, are not reinstated by the employer. If these 
men Hve in a small town, depending upon one or two indus- 
tries, their position becomes quite precarious. Altogether, 
the strike offers to labor a very uncertain remedy. 

To the employer, the strike involves serious consequences. 
Of course, it is true that should he win the strike he would 
secure more absolute control over his business and be able 
to decrease wages, lengthen hours, and impose his own work- 
ing conditions. On the other hand, the enforced idleness of 
his plant entails great financial loss. In addition to this, 
much property is destroyed by violence. Again, if he 
loses the strike, the extra expense entailed by increased wages 
seriously handicaps the employer in renewing his business 
operations. For all these reasons, the employer is opposed 
to strikes. 

Finally, strikes seriously affect the public; and, because 
of this fact, it is generally agreed that the pubhc should be 
the final arbiter of disputes between labor and capital. A 
strike curtails production. The public, therefore, will have 
less to consume during the ensuing period. Then, too, as 



326 Elements ' of Economics 

in the case of the great Anthracite Coal Strike, a strike is 
often followed by an increase in prices which falls heavily 
upon the public. The strike also seriously menaces social 
welfare through destruction of property and violation of 
law. 

In addition to the trade agreement and the strike, the 
union possesses still another weapon — the boycott. This 
The hoy- IS simply an organized refusal on the part of a 
cott. group of persons to buy goods from another per- 

son or group of persons. It may be used by opposing busi- 
ness houses, but it is chiefly the weapon of the worker and 
of the pubHc. 

The boycott has four forms. In the simple boycott, a 
group of persons, who have been working for a certain 
employer, refuse to buy his products. In the compound 
boycott, the workmen directly interested in injuring the 
boycotted person enlist the cooperation of outside parties. 
This form of boycott is regarded as a conspiracy. The third 
form of boycott is negative in character and is known as the 
" fair list," or " white list." In the first case, the union 
periodical publishes a hst of firms described as " fair " 
because they work under union hours, pay union wages, 
and employ union men. In the second case, the Con- 
sumers' League publishes a list of firms described as " white" 
because they do not violate factory laws or other rules agreed 
upon. The fourth form of boycott is the " unfair list," or, 
as it has been called, the " we don't patronize " list. In this 
case, the labor periodical actually publishes the names of 
firms that do not provide fair conditions for their employees 
and thus urges the public not to purchase their goods. The 
court has, in certain cases, prohibited the use of this form 
of boycott. 



Experiments of the Worker 327 

Armed with the strike and the boycott, and using the 
collective bargain to secure its end, modern unionism has 
made valiant attempts to raise wages and to bring about 
better working conditions. The success attending both 
these efforts has been widespread. However, because of the 
rise in prices, the advance in wages has been more apparent 
than real. On the other hand, an actual and permanent gain 
in the form of shorter hours and improved working conditions 
has resulted from union activities. But, while the results 
accompHshed by unionism have been great and its outlook 
is generally favorable, yet the movement to-day is facing 
some serious problems. The use of the injunction and the 
recent restriction of the boycott handicap the union in its 
attempts to better working conditions. At the outlook for 
same time the growth of employers' associations i^niomsm. 
on a national scale serves to weaken the union's power. 
When the unions organized on a national basis, the employ- 
ers did Hkewise. Thus, the American Federation of Labor 
now faces the National Association of Manufacturers. So 
long as the union alone was organized on a national basis 
its power was almost unhmited. But, to-day, as a result 
of this national organization of employers, the union has 
lost some of its monopoly power. However, since both 
sides of an industrial controversy will now be obliged to rely 
more closely upon pubhc support for final success, the ulti- 
mate effect of the power of the public may redound to 
labor's advantage. 

TOPICS FOR CLASS DISCUSSION 

1. What is consumers' cooperation? 

2. What are the reasons for its success in England ? 

3. What are the reasons for its faikire in the United States ? 

4. What is producers' cooperation ? 



328 Elements of Economics 

5. Why has producers' cooperation generally failed ? 

6. What is the strength of the cooperative program ? What is its 
weakness ? 

7. What steps would be necessary before cooperation could be 
generally established in the United States ? 

8. What economic forces led to cooperation among American 
farmers ? 

9. What has forced retail grocers into a kind of cooperation ? 

10. Explain the value of the collective bargain to the labor union. 

11. How much justice is there behind the collective bargain ? 

12. What is the economic basis for the eight-hour day ? 

13. Is the eight-hour demand any more reasonable now than it was a 
hundred years ago ? 

14. What is the effect of an eight-hour day on the quality and 
quantity of the output ? 

15. What is the effect of pace setting on the product ? 

16. Why do men strike ? 

17. Is the "strike" spirit a good one for the community ? 

18. Can the "strike" spirit be eliminated? 

19. On what grounds can the strike be justified? 

20. What is a boycott ? 

21. Give some examples of boycotts. 

22. Is the " boycott " spirit a good one ? 

23. If you were a wage worker, would you feel that your interests and 
those of your employer were essentially opposed ? 

24. Under what circumstances might trade unions be of distinct 
advantage to employers ? 

25. Should union activity be permitted to interfere with industry? 

26. What is the significance of the entrance of the union into 
politics ? 

27. What would be the ideal outcome of the union movement in 
America ? 

REFERENCES 

Labor Problems — Adams & Sumner. 
Organized Labor — J. Mitchell. 
Labor Movement in America — R. T. Ely. 
Industrial Democracy — S. and B. Webb. 
History of Cooperation — ^G. J. Holyoake. 



CHAPTER XL 
The Program of Regulation 

I. Development of regulation 

1. The individualistic attitude 

2. The social attitude : 

a. Necessity for regulation 

b. The present test 

c. The government's duty 

II. Regulation through poHce power 

1. Its meaning 

2. Its application : 

a. Hours of work 

b. Sanitation : 

(i) Of factories 
(2) Of houses 

III. Regulation of prices 

1. Principle of " cost price " : 

a. Its meaning 

b. Its requisite 

2. Examples of regulation: 

a. Control of labor 

b. Revision of tariff 

c. Control of capital 

3. Outlook for regulation 

Development of Regulation. — The western world of the 
late eighteenth and early nineteenth centuries was domi- 
nated by the idea of individual freedom. In philosophy, 
legislation, industry, religion — everywhere — r^^^ individ- 
the spirit of democracy had taken hold upon the uaiistk 

1 T->i-' J 1 attitude. 

people, ihis democracy, however, was essen- 
tially different from democracy as it is thought of at the 

329 



330 Elements of Economics 

present time. The individual then, as now, was the fac- 
tor of primary interest in social progress. Yet individual 
welfare, according to the view prevaihng at that time, was 
to be secured through individual freedom. The poHcy of 
laissez /aire, or " let alone," was rigorously enforced so that 
any activity of the individual was justified provided it did 
not interfere too seriously with the welfare of the remaining 
members of society. 

The opening years of the twentieth century still reveal the 
presence of the spirit of democracy, yet in an essentially 
different form. The eighteenth and nineteenth century 
The social democracy commanded the government to leave 
attitude: ^]^g individual free to do as he pleased. But 

N CCCSS'tt'V 

for reguia- more than a hundred years of this individual free- 
tion. d.ovci have shown, to the satisfaction of the great 

majority, that the eighteenth century laissez-faire philos- 
ophy often results in much evil. Society is not always 
justified in letting the individual take his course ; because, 
if an individual has anti-social ideas and is left free to do as 
he pleases, society must suffer from his unrestricted free- 
dom. The industrial monopolist believes that he should 
be " let alone," but from this point of view society does not 
agree with him. He is dependent upon society for his 
power and, like any trustee, must give an account of his 
stewardship. 

Thus, at the beginning of the twentieth century, men are 

measuring proposed actions by the test of social welfare. 

The question which is raised is no longer one of individual 

initiative but of social justice. Does a man wish 

The test. , . ... -n i 

to engage m certam activities? What will be 
the effect of his act upon society ? If it be socially harmful, 
then the act itself should be forbidden. 



The Program of Regulation 331 

Under this spirit of social control the program of govern- 
ment regulation has developed with surprising rapidity. 
Jefiferson, one hundred years ago, said, " That government 
is best which governs least." Now, however, ^owem- 
it is regarded as government's duty to regulate ment's 
the limits beyond which the individual may not " ^' 
pass and remain free from social punishment. Proceeding 
on this principle, society regulates rates, inspects factories, 
requires fire escapes, and in various other directions controls 
freedom of individual action. 

Regulation through Police Power. — The first attempts at 
general regulation by the government were made through 
its " police power." By police power is meant the author- 
ity to regulate individual action for the general good. Of 
course, government must protect its citizens. 

Its meaning. 

Men should not be wantonly murdered ; prop- 
erty should not be unjustly appropriated ; the public peace 
should not be unnecessarily disturbed. The activities of 
government in these directions are, therefore, included under 
its police power. But government may also exercise this 
power to protect, not only the safety, but also the health 
and morals of society. 

In pursuance of this legal doctrine, the work of women and 
children has been so regulated that their health and safety 
are conserved. For example, it is unlawful to employ chil- 
dren below a certain age in a factory because social welfare 
demands that children shall have a minimum of its appiica- 
education before taking up the tasks of life. !!" ' ^ 

'=' ^ Hours of 

Women, too, are forbidden to work more than a work. 
certain number of hours per week ; and employers are com- 
pelled to provide specified sanitary conveniences, because 
the courts have ruled that the health and safety of society 



332 Elements of Economics 

depend upon these regulations. Thus far the police power 
has been applied in very minor forms to the activities of men, 
because men are presumed under the law to be free contrac- 
tual agents and, as such, are responsible for the consequences 
of their acts. 

In recent years, the police power has been widely exer- 
cised in the regulation of sanitation. It is but a generation 
since houses and factories were constructed in any way that 
would suit the convenience or whim of the 

Sanitatton. , ., , ... . . , . , 

builder. Recent scientific investigations, which 
have made known the effects of bad air and lack of necessary 
sanitary conveniences upon workers in factories, led to fac- 
tory legislation aimed directly at the evil of insanitation. 
While these measures have not in all cases been enforced, 
they exist on the statute books as an indication of legisla- 
tive opinion on the subject of public health. 

No less effective have been the efforts to regulate the sani- 
tation of houses. Until recently it was generally believed 
that a man's house was his castle ; that men had a right to 
privacy and freedom at home ; and that the conditions there 
surrounding their lives were a matter of indifference to the 
public at large. Diseases spread, however, and diseases are 
bred in filthy houses and courts. In a densely settled neigh- 
borhood, it is a matter of much more than individual con- 
cern that a man has smallpox. Therefore, particularly in 
Europe, many efforts, in the form of city planning, have been 
made to improve living conditions. The size, air space, 
sanitation, and construction of houses are all subject to 
stringent regulation because of the generally recognized 
connection between such regulation and social welfare. 

Regulation of Prices. — Another form of government 
regulation is the attempt, championed by Professor J. B. 



The Program of Regulation 333 

Clark, to secure " cost prices." A " cost price " is a price 
equivalent to the cost of production, plus a reasonable profit. 
Therefore, according to this view, in the fixing of « cost 
cost price no element of monopoly or special p"'=^ " ' 
privilege should enter. Cost prices. Professor '^ »«««»»««■ 
Clark maintains, are just prices. Accordingly, social jus- 
tice demands that the consumer be given the benefit of 
modern discovery and inventions so that, when a device is 
perfected which lowers the cost of production, the price of 
the commodity in question should be proportionately re- 
duced. 

Cost prices depend, of course, upon free competition. 
But we have seen that, as a matter of fact, prices are, to-day, 
often determined by monopoly power. Therefore, these two 
forces — competition and monopoly — come into conflict. 
Both cannot exist at the same time. Conse- its requi- 
quently if competition is to be restored and 
cost prices established, monopoly power must be regulated. 
That is to say, whenever monopoly attempts to fix prices, 
the government must interfere and reestablish competi- 
tion. The regulation of monopoly power thus becomes 
a requisite to the principle of cost price. 

Proceeding on this basis, the adherents of this school 
desire to regulate all forms of monopoly so that cost prices 
may be assured. If, for example, labor, through its mo- 
nopoly power of organization, fixes too high a ^f^^ruia^ 
price for its services, it must be subjected to tion: 
government regulation. No exception is to be laTor.^ 
made in its favor. When the union uses its weapons so 
effectively that it develops into a monopoly organization, 
it destroys that free competition upon which the adherents 
of this school beHeve the price of labor should depend. 



334 Elements of Economics 

The program of regulation, therefore, includes labor within 
its sphere of activity. It may readily be seen that this 
program is directly opposed to the teachings of those who 
advocate the development of monopoly power on the part 
of labor. 

In the same way, the manufacturer must not be allowed 
to profit by monopoly power. Whenever an unfair advan- 
Revision of tage has been given him by reason of undue pro- 
tarif. tection against foreign competition, the govern- 

ment must revise its former act. There is little doubt that 
prices are artificially raised by means of monopoly power 
given to the manufacturer through protective legisla- 
tion. These prices are certainly not cost prices. There- 
fore, to restore the latter, the government must revise 
tariff acts and regulate the business of the manufacturer. 

This principle of government regulation has, however, as 
we have already seen, been chiefly appHed to the control 
of great combinations of capital in the form of trusts and 
Control of railroads. Enough has been said in previous 
capital. chapters to indicate the character of these laws, 

and their desired effects. It is only necessary at this point 
to call attention to the fact that they are the most represent- 
ative American attempt to apply the program of govern- 
ment regulation to the affairs of society. Whether this 
program is completely practicable will, in large measure, be 
determined by the ultimate effect of railroad and trust legis- 
lation. Thus far, both groups of legislation are in a forma- 
tive stage, and the future is still in doubt. 

The program of government regulation is likely to succeed, 
(i) if competition can be maintained, and (2) if the depart- 
ments of government represent the welfare of the majority 
of the people. According to the doctrine laid down by 



The Program of Regulation 335 

the government regulationists, competition is absolutely nec- 
essary to the success of their program. But it is questionable, 
in the face of such great monopoly power grow- outlook for 
ing everywhere around us, whether the old con- regulation, 
ditions of free competition can ever be restored. In fact, 
it is doubtful whether the principle of free competition is 
of more ultimate good to society than the development of 
monopoly power and a spirit of cooperation. However, 
both great political parties in this country stand for some 
form of government regulation. If these parties really 
represent the majority interests of their constituencies, 
they will, when in power, carry out this program in their 
behalf. In many instances, however, signs have not been 
wanting that special interests have influenced regulative 
legislation. 

TOPICS FOR CLASS DISCUSSION 

1. What is the attitude of an advocate of government regulation 
toward competition ? 

2. Is there any rule for determining the limits of State interference ? 

3. What is the police power ? 

4. In what way does its exercise justify government regulation of 
industry ? 

5. Explain carefully under what circumstances a legal eight-hour 
day might be justified under the police power. 

6. What is a "cost" price? 

7. Is a cost price necessarily a just price ? 

8. What is the attitude of the government regulationist toward a 
tariff on wool ? On antiques ? 

9. What control would the governmental regulationists exercise 
over capital ? 

10. Wovdd an advocate of this program have the State fix rents ? 
.11. What is the view of the advocates of this program on the subject 
of the "economies of combination" ? 



336 Elements of Economics 

12. What is the attitude of an advocate of government regulation on 
the question of socialism ? 

13. What is the attitude of the adherents of this program toward 
monopoly ? 

REFERENCES 

The Distribution of Wealth — J. B. Clark. 
The Control of Trusts — J. B. Clark. 
The Trust Problem — J. W. Jenks. 
Monopolies and Trusts — R. T. Ely. 
Labor Problems — Adams and Sumner. 



CHAPTER XLI 

Programs of Socialization 

I. The Single Tax 

1. Its object 

2. Its meaning 

3. Its advantages : 

a. Prevents land speculation 
h. Simplifies taxation 

c. Increases production 

d. Relieves poverty 

4. Basis of its position : 

a. Land different from property 
h. Land values social values 

5. Its outlook 

II. State Socialism 

1. Its distinctive character 

2. Its growing importance 

3. Its chief criticisms of society: 
a. Exploitation of labor 

h. Growth of private monopoly 

c. Lack of equal opportunity 

d. Waste of effort 

e. Evils of competition 

4. Its leading principles : 

a. Government ownership advocated : 
(i) Its advantages 

(2) Its expected results 

b. Private property opposed : 
(i) Extent of opposition 

(2) Position of " capital goods " 

5. Its limitations 

6. Its future 

z 337 



338 Elements of Economics 

Two other programs of economic reform depend for their 
success upon the action and support of government. Both 
of these may be described as programs of socialization. In 
the one, the aid of government is invoked in order that so- 
ciety as a whole, rather than particular individuals, may 
enjoy the benefits of the increased valuation of land resulting 
from social action. In the other, government is relied upon 
to bring about not only a socialization of land, — natural 
resources,: — but also of capital, — the tools of production. 
The one is usually known as the Single Tax Theory; the 
other as State Socialism. 

The Single Tax. — In his " Progress and Poverty," Henry 
George asks this question, " Why in spite of the increase in 
productive power do wages tend to a minimum which will 
give but a bare living? " Starting out with this query, 
George explains the coexistence of progress and poverty 
on the ground that the landlord class has appropriated 
as rent a great mass of wealth that should go to labor as 
wages, or to society as social income. He shows that the 

great increase in land values due to the growth of 
Its object. . , . 

population (as evidenced by the fact that Man- 
hattan Island alone in three hundred years increased in value 
one hundred million times) has gone, not to the people who 
created it, but has been appropriated by a few landlords in 
the form of an " unearned increment." Therefore, to re- 
store this " unearned increment " to society and thus 
to do away with the poverty of the masses, Henry George 
proposed what is now universally known as the Single 
Tax. 

The Single Tax, to use Henry George's own words, is 
"' One single tax levied on the value of land irrespective 
of the value of improvements in or on it." All machinery 



Programs of Socialization 339 

of taxation would be done away with except that necessary 
to assess and tax land values. Hence the name " Single 
Tax." Now it must be distinctly borne in mind that this 
Single Tax means a tax on land itself, — not on any 

, .Its meaning. 

of its buildings or improvements. The tax is 
aimed solely at land values, and is thus an attempt to so- 
cialize the value of the land by turning over to the people 
the " unearned increment." 

The advantages claimed for the Single Tax are, first, that 
while it would be so high as to cover the full value of the bare 
land, it would not apply at all to the value of improvements 
upon land. Since these improvements would remain un- 
taxed, there would be every inducement to make improve- 
ments. At the same time, since land itself would be taxed 
to its full value, there would be no inducement for its advan- 
land speculation. Nothing whatever would be ^^^^\ 

'- *^ Prevents 

gained by holding idle land. In this manner, speculation. 
while every encouragement would be offered land improve- 
ment, an effective blow would be given to land speculation. 
Our present system of taxation encourages land speculation 
by taxing unimproved land at a lower rate than improved 
land. 

Another advantage of the Single Tax is its simplifying 
effect upon the mechanism of taxation. The present land 
tax would be retained, but the intricate system of simplifies 
internal revenue and tariff collection would be f^^^^^on. 
aboKshed, and a great saving in the collection of taxes thus 
effected. Furthermore, there would be no chance to escape 
land taxation. Personal property may be concealed. Land, 
however, cannot be hidden from the assessor. 

The Single Tax would also increase the productive 
capacity of the community. This is true because the aboli- 



34° Elements of Economics 

tion of taxes on industry (and the substitution of the Single 
Increases Tax in their place) would free the active elements 
production. [^ production, — labor and capital. At the 
same time, this substitution would bring into use more land 
than is now available for productive purposes. 

Finally, the Single Tax would relieve poverty by taking 
the " unearned increment " from the landlord and giving it 
Relieves to society. Then, since the Single Tax would 
poverty. f^yi most heavily on the cities where land values 
are greatest, the poorer agricultural districts could be re- 
lieved from the heavy burden of taxation. 

The advocates of the Single Tax argue, moreover, that it is 
just, because land is not Hke ordinary private property. As 
the earth was not made by man, but merely supplies a tem- 
Its basis : porary dwelling place for generation after genera- 
Land differ- ^[q^ |-]^g j^gj^ bom into the world have an equal 

ent from _ ' ^ ^ 

property. right to the free gifts of nature. Therefore, 
the natural resources of a nation should be used for the 
benefit of the entire nation, and this condition of affairs 
can only be brought about by shifting the burden of taxa- 
tion from the majority who do not hold land to the minority 
who do. Single Taxers believe that a tax laid on tools or 
any other creation of human labor \dolates a right of prop- 
erty, because it takes from the man who has created it part 
of the thing which he has made. The tax on land values, 
however, takes from individuals nothing that they have 
actually created. 

Again, the value of land is not due to the work of man and 
T . therefore its value bears no relation to actual 

Land 

values social individual effort. The value which is created in 
va ues. ^j^^ land as the result of the centraHzation of 

business in New York City is appropriated by a few indi- 



Programs of Socialization 341 

vidual land owners. This, maintain the Single Taxers, is 
manifestly unfair because they did not create the value of 
Manhattan Island nor are they responsible for increasing 
it. This socially created value should be used for the 
purpose of developing certain community interests. With 
these properly secured and safeguarded, poverty would be 
at a minimum by reason of a more equal distribution of 
the wealth of society. 

Whether the amount derived from a land tax alone would 
be sufficient to meet all of the expenses of government is 
still a matter of legitimate dispute. That the Single Tax 
would abolish poverty or establish complete democracy is 
certainly improbable. The present system of taxation is 
unquestionably imperfect. Thus the Single Tax would 
doubtless prove a remedy for some of the chief its out- 
defects of the present system. That it would ^°°^- 
prove a cure-all for social ills no thinking person can believe. 
The Single Tax principle has been appHed in New Zealand, 
Vancouver, and in a somewhat modified form in England 
and parts of Germany. As a program, it has never been 
afforded an opportunity to demonstrate its effectiveness-. 
However, present indications point to a time in the very near 
future when some of our Western States, as well as several 
of the more progressive European countries, will be seriously 
remodeling their taxing systems on the basis of the Single 
Tax theory. 

State Socialism. — While the Single Taxers hold to the 
socialization of natural resources as a means j^g distinc- 
of securing social progress, another school of tive char- 
reformers — the Socialists — hold that, in order 
to attain social justice, not only natural resources, but also 
capital, must be socialized. Therefore the Sociahst, in 



342 Elements of Economics 

his program, proposes to socialize not only land, but also 
the tools of production included in capital. 

The recent growth of Socialism is one of the important 
phenomena of modern times. In several European coun- 
tries its growth has been so rapid that many believe it 
will eventually become a firmly established institution. 
Although the Socialist cause in this country musters but 
half a million votes, it has attracted to its ranks capable 
Its erowing ^^^ from many walks of life. To many the 
impor- word '' Socialism " stands in the same category 

as " anarchy " ; and that in the same category 
as " bomb throwing." Such confusion of thought is the 
mark of an untrained mind. 

The objections which Socialism makes to the present order 
of society seem to group themselves under five headings. 
First, there is the belief in the universality of exploitation. 
Exploitation means that an individual receives less than he 
Its criti- produces. According to the Socialist's use of 
cisms: |-]^g term, a day laborer, creating in a year $900 

tion oj worth of value and receiving only $400 in wages, 

laior. is being exploited by the capitaHst to the amount 

of $500. In the eyes of the Socialist, exploitation is 
an inevitable result of a system which permits the private 
ownership of tools of production and the control of capital 
in such a manner that the owner of the machine becomes 
the master. It is to the interest of the tool owner to get 
the tool user to work at the lowest possible wage; hence 
exploitation eventually results. 

The second criticism that the Socialist urges against the 
present system is that it permits the growth of private mo- 
nopolies and offers no effective way to check them. Many 
fabulous fortunes, he asserts, have been made through the 



Programs of Socialization 343 

monopoly control of articles of general consumption, — coal, 
meat, ice, and iron ; or through the ownership of mo- 
nopoly business, — street-car lines, telephones, Q^^^if^ gj 
railroads, gas, and water supply. The Socialist private 
beheves that it is hopeless and furthermore un- ^"^^ " ^' 
desirable to endeavor to restore competition as a regulator 
of prices. As competition largely gave way to combination, 
so he beheves State monopoly must succeed private mo- 
nopoly. 

The third criticism offered by the Socialist is that society 
lacks a plan for the constructive development of all its parts. 
He sees chaos in the present arrangement. To him the 
world is a bundle of contradictions. In an age of plenty, 
he still sees the universal specters of poverty, ^^^^ . 
ignorance, and crime. Although man has con- equal op- 
quered his environment through harnessing the "'" ^' 
forces of nature, there are still underfed children, homeless 
men, imperfect sanitation, low pay, and lack of employ- 
ment. Too often the welfare and happiness of many are 
dependent solely on the accident of birth. The race of 
life is unequal. Some start with such handicaps as a body 
undernourished from infancy, and a mind equipped with 
but the merest rudiments of education. These at thirteen 
or fourteen are destined to the life of a factory, while 
others have the possibility of a college diploma and the 
assurance of a social and business position. 

The fourth criticism that the Socialist urges against mod- 
ern society is its wastefulness. Competition is uneconomic ; 
cooperation, economic. Under the competitive system 
much is done in duplicate and triplicate that could waste of 
just as well, under a system of cooperation, be done ^^''^^■ 
but once. This is particularly true in the distribution of 



344 Elements of Economics 

goods for consumption. A half dozen competing hucksters, 
milkmen, and icemen pass over the same route daily when 
half that number might have distributed the same amount of 
goods had there been no competition. 

A fifth criticism of the Socialist is against the essentially 
evil nature of competition. In industrial competition he 
sees a force that calls out all the bad in human nature, while 
at the same time it suppresses much that is good. 
Competition "^^ Undersell their competitors and make a profit, 
men adulterate food, employ child labor, violate 
factory inspection laws, and pay low wages. Competition 
puts the law-abiding and humane employer at a disadvan- 
tage and forces the indifferent employer over into the camp 
of those who seek success at any price. 

And so State Socialism, weighing the present organization 
of society in the balance and finding it wanting, comes for- 
ward with a plan built on an entirely different basis. It 
proposes to substitute for the private ownership of all land 
and capital goods, — factories, railroads, stores, and the 
Its leading ^^^' — social Ownership and operation. In this 
principles: plan the Socialist sees many advantages. Un- 
Govern- ^^^ such a systcm there would be no capitaKst 

ownership to demand interest ; all the returns of labor would 

advocated. . ^ ^ ^ ^ •, i' 11 \ 

go to labor, and exploitation would cease. As 
the government would own all the land and natural resources, 
there would be no monopolist's profits to be paid out of the 
pockets of consumers. Since competition would be de- 
stroyed, there would be no further incentive to adulteration of 
goods, to child labor, or to the violation of health and fire 
ordinances. In place of a society of competing units, each 
struggling to get the most for himself, State Socialism would 
substitute an orderly plan for the attainment of definite and 



Programs of Socialization 345 

uniform results. Every child would be guaranteed education 
and support at State expense, and every man in old age after 
his life work is over would be an honored pensioner of the gov- 
ernment. Instead of working ten and eleven hours a day, 
the working day would be cut in half through the economies 
of cooperative action. 

The SociaHst beHeves that in many ways society has 
outgrown the institution of private property, just as much as 
it has outgrown the institution of property in individuals 
called slavery. He admits that both may have been valu- 
able at a certain stage in the development of civilization, 
but asserts that that time is now passed. In attacking 
the institution of private property, it should be borne in 
mind that the Socialist opposes private ownership in land 
and the tools of production only. In common with the 
Single Taxer, the Socialist believes that the land is a gift 
to all, from the Creator, as free as air or water, p^i^^^fg 
He would, therefore, restore it to its original property 
state. Arguing solely from the standpoint of °^^°^^ ■ 
expediency, he upholds that, if the best interests of society 
are served by a system of common ownership of its capital 
goods, there is no valid reason why such a system should 
not be put into operation. 

The Socialist therefore goes one step beyond the Single 
Taxer. He would socialize capital as well as land. Would 
SociaHsm inaugurate the millennium ? Certainly j^g limita- 
not. Men and women would still be dishonest, tio^s. 
lazy, shiftless, and vicious under Socialism. Officials 
would steal; ambitious men would usurp power; dema- 
gogues would secure office. Socialism would not reform 
men — it might give them a chance to improve their con- 
dition. Under Socialism the productive machinery would 



346 Elements of Economics 

be less efficient; there would be less opportunity for the 
genius to make his mark in industry ; the whole mechanism 
of society might prove too great a burden for a government 
to carry successfully. One fact is obvious — neither So- 
cialism nor any other scheme of social betterment can suc- 
ceed until the standard of education is raised among the 
people. 

In Germany, the Socialists cast more votes than any other 
political party. In Belgium, France, Italy, and England, 
Socialism has likewise gained a strong foothold. In the 
United States, although the number of Socialists is com- 
paratively small, they have elected mayors, legislators, and 
other public officials. Thus the movement 

Its future. 1-1 . 1 • 1. 1 1 • 

which was at one time openly ridiculed is now 
secretly feared. Its leading thought — - the increase of 
social control — is steadily gaining ground. Everywhere, 
we find government taking on more authority and exer- 
cising greater power. Thus, while it is unlikely that the 
doctrines of State Socialism will be carried out in their 
entirety, it is equally likely that they will be applied in a 
modified form to the solution of many pressing problems. 

TOPICS FOR CLASS DISCUSSION 

1. What is " the full economic value of land " which Henry George 
would absorb by a tax ? 

2. Outline the arguments for and against the Single Tax. 

3. What has the Single Tax accomplished as applied in New 
Zealand ? 

4. What is exploitation ? 

5. Of the bases of modern Socialistic thought, which appears to you 
to be the strongest ? 

6. Was Marx correct in assuming that labor is the sole cause of 
value in exchange ? - 



Programs of Socialization 347 

7. Why has State Socialism had such a rapid rise in Germany ? 

8. What are the leading economic doctrines in the platform of the 
American Socialist party ? 

9. To what group in the community do the doctrines of Socialism 
make their strongest appeal ? 

10. Theoretically, which group in the community would be the 
chief gainer through Socialism ? 

11. Outline the best arguments in favor of Socialism. 

12. Outhne the best arguments against Socialism. 

13. Is Socialism to be judged by its ideal or by its probable working ? 

14. What are the difficulties which you think the cooperative 
commonwealth would experience ? 

15. Do you think it possible for a government representing the 
workers to take over one great industry after another and to operate 
these great industries for the common welfare rather than for profits ? 

16. Does the Socialist urge equal distribution of wealth ? 

17. What are the forces making for Socialism in the United States 
to-day ? What are the forces militating against Socialism ? 

18. Why is it not right to say of every public interference in in- 
dustry that it is socialistic. When may a measure be called socialistic ? 

REFERENCES 

Progress and Poverty — Henry George. 
History of Socialism — Morris Hillquit. 
Socialists at Work — Robert Hunter. 
History of Socialism — T. Kirkup. 
Man versus the State — Herbert Spencer. 



CHAPTER XLII 

Social and Economic Progress 

I. Belief in progress 

1 . What is progress ? 

2. Its philosophical basis : 

a. Influence of environment : 
(i) The two forces 

(2) The old fatalism 

(3) The new optimism 

b. Belief in natural capacity : 
(i) The former attitude 
(2) The present belief 

II. Requisites of progress 

1. The ideals: 

a. Opportunity 

h. Social adjustment 

c. Efficiency and education 

d. Leisure 

e. Recreation 
/. Health 

2. The method 

At first glance the various experiments and programs for 
individual and social betterment seem to have little in 
common. From the benevolent attempts of the employer 
to improve the condition of his worker to the insistent 
demands of the Socialist for the social ownership of the tools 
of production, there are many varieties of proposals. But 
while these programs of economic reform show such diver- 
sity of thought and opinion, they nevertheless have a com- 

348 



Social and Economic Progress 349 

mon basis. All rest upon the belief that economic and 
social conditions demand improvement, — all are programs 
of progress. 

Belief in Progress. — After all, then, these diverse plans 
of economic reform have a unity of purpose, — a desire 
to better the condition of the worker. Their advocates, 
who believe absolutely in the attainment of progress, are 
sharply distinguished from those conservatives and reaction- 
aries who beHeve that " Whatever is, is right." These pro- 
gressives are not content with " well enough " ; they are always 
striving for " something better." Progress is what is 
the goal of all their activities. But what is progress? 
progress? It is the forward movement of all members of 
society, — not the mere advance of particular individuals. 
From an economic standpoint, progress is measured by 
individual and social welfare, and the test of this welfare 
is individual and social prosperity. Thus, progress is not 
only the goal of economic endeavor, but it is also the goal 
of economic reform. 

What reason have men for beheving that progress is 
possible? To answer this question, one must understand 
the character of the forces at work in shaping its basis: 
the destinies of Hfe. Broadly speaking, these ^^A^^^'^^ 

•' ^ "' of envtron- 

forces are those of heredity and environment, ment. 
Every one's Hfe is a product of these two forces. Man is 
thus a combination of inherited traits and acquired charac- 
teristics. But which of these two sets of forces is the domi- 
nating element in the hfe of man? One's attitude on this 
question determines one's philosophy of life. The advocate 
of progress bases his belief on the dominating influence of 
environment. 

The effect of the opposite view — that man's course is 



3 so Elements of Economics 

determined by hereditary influences — is at once apparent. 
If this be true, progress is impossible in many cases. Ac- 
cording to this behef, men may be born vicious and des- 
tined, by the laws of heredity, to remain so from generation 
to generation. This represents the old fatalistic attitude 
of the past. So long as men believed that the evils of the 
past were transmitted to the present, progress was practi- 
cally impossible. There was no possibility of going into the 
past and influencing the parents of the present generation. 
This present generation, depraved because of the depravity 
of its ancestors, must in its turn hand on its low standards 
to the generations of the future. Thus the process would 
be endlessly continued through years of hopeless despond- 
ency. This old belief in hereditary depravity — in the 
transmission of acquired characteristics — kept society 
from properly educating the child, prevented normal care 
of the criminal and social outcast, and, in every direction, 
restricted individual and social progress. 

The new view is full of hope and promise. The modern 
progressive has shaken himself free from the old fatalistic 
belief in the inheritance of acquired traits ; and announces 
fearlessly that, since he believes that only race traits are 
inherited, the vast majority of evils which beset mankind is 
not the product of heredity, but is generated largely by the 
environment. This view, by emphasizing the fact that 
most men are normal, makes progress possible. It forms 
the basis of a new optimism and is characteristic of the atti- 
tude of the modern social worker. According to this belief, 
social and economic conditions may be improved simply 
by improving man's environment. The fundamental evil 
lies not in the individual, but in conditions surrounding him. 
If bad living and working conditions are largely respon- 



Social and Economic Progress 351 

sible for misery and vice, the surroundings of the worker 
must be improved. Instead of the past, the present must 
be investigated. Each generation starts afresh and, by 
improving its surroundings, may rise to a higher level than 
that reached by its predecessor. Thus progress is always 
attainable. 

The other side of this conviction, that improvement in 
environing conditions will remove the cause of misery and 
vice, is expressed, of course, in the belief in man's natural 
capacity. These convictions are complementary. Man 
himself is believed to be thoroughly capable of improvement, 
and this belief furnishes a real basis for progress. This 
concept of the natural capacity of man dominates the 
thought of a progressive society. If people were belief in 
born with a fatalistic curse upon their heads, if natural 
total depravity were an inherited thing — the '^°' '^" ^' 
product of the degeneracy of past ages — ■ progress would 
hardly be possible. During the centuries when such ideas 
were held, little progress in the condition of the masses was 
made, because each person felt the impossibility of a forward 
movement. Recent years, however, have seen a distinct 
change in this respect. Thinkers now vigorously maintain 
the possibility of improvement ; they have turned from the 
argument of " total depravity " to that of " universal 
capacity." 

Requisites of Progress. — If, then, man is capable of 
improvement and progressive development, what is required 
to call this forth ? In the first place, he must be given oppor- 
tunity. This was emphasized at the outset of our study and 
it is now restated in the closing pages. Equal opportunity, 
however, means neither equality nor identity. An embryo tic 
painter and an embryotic engineer are neither equal nor 



352 Elements of Economics 

identical, yet both may be afforded an equal chance to 
develop their respective talents. Thus, equal opportunity 
-Tjjg means simply an equal chance to advance and 

ideals : is advocated, regardless of any particular program 

opportunity. ^£ j-gfQj-jj^^ |3y q\[ bclievers in progress. If, 
to-day, nine tenths of the men and women about us are born 
approximately normal and naturally capable, they will all 
make progress when given equal opportunity. 

But something more than opportunity is essential to 
progress. Society needs adjustment. In order to secure 
this universaHty of opportunity which will permit of indi- 
Social ad- vidual development, changes must be made in 
justment. environing conditions. Families are underfed 
and badly housed ; children are sent into the mills at four- 
teen ; the school system is not planned primarily for the 
worker ; and men die at an early age because of industrial 
accidents and preventable diseases. These maladjustments 
which are responsible for lack of opportunity must be swept 
aside. No conscious will has placed obstacles in the way of 
man's development ; and through adjustment society itself 
must remove them wherever they exist. 

Of equal importance with opportunity and adjustment is 
efficiency. Of course, if opportunity is afforded, efficiency 
will usually follow. In all directions the cry of efficiency is 
heard. If progress is to be attained, society as well as in- 
dividuals must develop the capacity to produce maximum 
^^ . results with minimum outlays. In the factory, 

Efficiency ^ •' ^ -' ' 

and edu- in the home, in the school, in the nation — every- 
caiion. where — efficiency is equally essential. All pro- 

grams of genuine progress emphasize this as one of the foun- 
dations of progress. Efficiency, of course, is attained through 
some form of education. Thus the economic importance of 



Social and Economic Progress 353 

education becomes at once apparent. Efficiency, as we 
have previously seen, also involves conservation. 

With opportunity, adjustment, and efficiency, come other 
ideals of progress. Chief among these are leisure, recrea- 
tion, and health. Without free activity, progress is not 
possible. Individuals must have spare time in 
which to do those things that it is impossible to 
accomplish in the rush of industrial life. The great achieve- 
ments of the world are often the products of leisure time. 
When men and women are educated to a wise use of free 
time, a shorter working day will prove of inestimable advan- 
tage to true progress. 

Along with the requisite of leisure comes the chance for 
recreation. To be progressive — to be able to move for- 
ward in the affairs of life — man must have some relief 
from the strain of industry. This is afforded through proper 
facilities for recreation. Thus, realizing that 
recreation is an ideal of true progress, munici- 
palities every year appropriate large sums of money for 
playgrounds, parks, and recreation piers ; while in many 
directions attempts are being made to regulate theatrical 
performances and moving picture exhibitions. At the same 
time, many efforts are directed toward providing some 
legitimate form of recreation for rural districts. 

Another ideal absolutely essential to progress is that of 
health. It is, in some respects, the most vital of them all. 
Without a strong, robust body, life is undesirable if not 
impossible. In every program of progress, there- 
fore, full provision should be made to develop and 
maintain sound health. The social worker, to-day, realizes 
the necessity for this ideal more than any other reformer. 

Formerly, men believed that disease always came as a 



354 Elements of Economics 

punishment for wrongdoing and was an evidence of divine 
wrath. This was a remnant of the old fatalistic attitude. 
To-day, men have scientifically demonstrated that, not 
divine wrath, but germs and bacteria are the cause of disease. 
Malaria is not carried through the air in the form of vapor, 
but is transmitted through the sting of a mosquito. Rem- 
edy for malaria, therefore, takes the form, not of sacrifices 
to appease divine wrath, but of a generous application of 
crude oil to the marshes and ponds in which the mosquito 
breeds. Thus, science puts to rout the old fatalism, and 
helps in the cause of progress. 

Concerning these ideals of progress all reformers are in 
practical accord. All would move in the same direction, 
with the same general end in view. It is not the end — 
the goal of progress — upon which social reformers differ ; 
it is the means — the method of attaining their ultimate 
desire. But even here -there is some agreement — some 
measure of unison. This manifests itself chiefly in one 
direction. It is generally admitted that progress should be 
The attained, not through sudden revolution, but 

attaining° through gradual evolution. Sudden disturb- 
progress. ances seldom effect permanent changes. Through 
the slow processes of time, extending over many generations 
and even centuries, progress is attained. To be sure, 
revolutions do occur ; and when they do, they provoke 
thought and discussion. Nevertheless, no one can reason- 
ably conceive of a social or economic revolution that in one 
generation would permanently change the methods of thought 
or motives of activity of all the people. The incoming of the 
factory system and the enunciation of Darwin's concept 
of evolution are good illustrations of revolutionary changes 
in economic belief and social thought. Yet, in both these 



Social and Economic Progress 355 

cases, the change in popular opinion required decades for its 
completion. So, inevitably, it must be with any funda- 
mental change instituted in behalf of social and economic 
progress. Revolution is uncertain ; evolution is unfailing. 

TOPICS FOR CLASS DISCUSSION 

1. What is your idea of progress ? 

2. What part does the environment play in progress ? 

3. Why are modern thinkers optimistic ? 

4. What is meant by the expression "environment is plastic" ? 

5. What basis does the behef in natural capacity furnish for 
optimism ? 

6. What part will opportunity play in progress ? 

7. What measures are being taken to-day to prevent congestion of 
population ? Premature employment ? 

8. What steps are being taken to accomplish a better distribution 
of population in this country ? 

9. What are some of the leading lines of activity in social work now 
being undertaken in America ? 

10. Which is more important, approximate equality of possessions 
or approximate equality of opportunity ? Do we have to destroy the 
present in order to secure the latter ? 

11. With a more general diffusion of knowledge, culture, and pub- 
licity, is political democracy in more or less danger ? Is equality of 
opportunity more or less likely to ensue ? 

REFERENCES 

Product and Climax — S. N. Patten. 

The New Basis of Civilization — S. N. Patten. 

Social Forces — E. T. Devine. 

Essays upon Heredity — Weismann. 



INDEX 



Accidents: 

causes of, gS. 

effects of, 98. 

kinds of, 95 et seq. 

number of, 96 el seq. 

remedy for, 95, 97. 
Adjustment : 

meaning of, 5. 

requisite of progress, 351 et seq. 
Agencies : 

land transportation, 190 et seq. 

water transportation, 73 et seq. 
Agriculture : 

development of, 139 el seq. 

early methods of, 140. 

importance of, 141. 

kinds of, 142 et seq. 

training in, 144. 
American foreign trade : 

exports, 243. 

imports, 243. 
Animal life, 152 et seq. 
Anti-Trust Act, 179. 
Apportionment of taxes, see Taxation. 

B 

Banking : 

cooperation in, 317. 

operations of, 228, 229. 
Barter, 223. 

Bills of exchange, see Credit. 
Book credit, see Credit. 
Boss, 186. 
Boycott : 

forms of, 326. 

meaning of, 326. 
Burden of taxation, see Taxation. 
Business organization : 

early forms, 175. 

later forms, 175 et seq. 
By-products, 170. 



Capital : 

character of, 121 et seq. 

definition of, 122. 

efficiency and, 127, 136, 276. 

kinds of, 128 el seq. 

management of, 130, 238 et seq. 

origin of, 124 el seq. 

reward of, 274 et seq. 
Capital good, 124. 
Cereals, 142. 
Checks, see Credit. 
Child labor : 

consequences of, 105 et seq. 

extent of, 104. 

regulation of, 107. 
China, 13 et seq. 
Circulating capital, see Capital. 
City life, 136. 
Civilization, 47, 134. 
Climate, 49, 50. 
Clothing, 32, 35- 
Coal: 

consumption of, 50, 51. 

danger from dust, 99, 100. 

supply of, 50 
Colonists : 

of Middle States, 83, 84. 

of North, 82, 83. 

of South, 84. 
Combinations, see Corporations and 

Trusts. 
Commerce : 

early restrictions on, 160. 

regulation of, 198 et seq. 
Competition : 

and price, 211, 212. 

evils of, 344. 
Conservation : 

of health, 12, 13, 81, 308 et seq., 353, 
354- 

of industry, 12. 



357 



358 



Index 



Conservation : 

of natural resources, ii, 53, 68, 76, 140. 
Consumption : 

cooperation in, 317 el seq. 

meaning of, 21. 

principles of, 27 el seq. 

productive and unproductive, 122. 
Cooperation : 

advantages of, 184. 

and social surplus, 133 el seq. 

experiments in, 317 el seq. 

outlook for, 320. 

stages of, 183. 
Copper, 52. 
Corn, 156. 
Corporations : 

advantages of, 176. 

and finance, 232 el seq. 

nature of, 176. 

regulation of, see Trusts. 
Cost of living : 

difJerences in, 32, 33. 

items in, 33 el seq. 
Cost prices, 333. 
Cotton gin, 130. 
Cover crops, 140, 150. 
Credit : 

advantages of, 230. 

kinds of, 226 et seq. 

meaning of, 226. 

D 

Dairying, 143. 
Dangerous trades : 

chief source of danger, gg. 

lead poisoning, loi. 

remedy for, 100, loi. 
Demand, see Supply. 
Diet, 28, 313. 
Differential rent, see Rent. 
Differentiation : 

in education, 116 el seq. 

in industry, 184. 

in labor, 183. 
Direct taxes, see Taxation. 
Dismal swamp, 60. 
Distribution of wealth: 

meaning of, 256. 

outlook for, 296 el seq. 

shares in, 256, 257. 

theories of, 261 et seq. 



Division of labor, 183. 
Drainage : 

extent in United States, sg. 

method of, 59. 
Duties, see Taxation. 



Economic ideals, 9 el seq., 352 el seq. 
Economic life, 21 el seq. 
Economic programs, see Programs. 
Economic rent, see Rent. 
Economics : 

meaning of, xiii. 

study of, xiv el seq., i el seq. 
Education : 

differentiation in, 116 el seq. 

function of, 113, 114. 

progress and, 352. 

social surplus and, 135. 

uniformity in, 114 et seq. 
Efficiency, 9 et seq., 352. 
Electric traction : ' 

rural, 195. 

urban, 195. 
Eminent domain, 192. 
Entrepreneur : 

grades of, 284, 285. 

meaning of, 175, 282. 
Environment, 349, 350. 
Exchange : 

bills of, 228. 

meaning of, 209, 228. 

method of, 223. 
Excises, see Taxation. 
Experiments : 

in cooperation, 317 et seq. 

in profit sharing, 306, 307. 

in welfare work, 308, 309. 
Exploitation, 258, 259, 342. 
Exports, 243. 
Express companies : 

growth of, 193. 

regulation of, 194. 



Factory system : 

advantages of, 163, 164. 

disadvantages of, 165. 

features of, 163. 
Farming, 138 et seq. 



' Index 



359 



Fatalism, 4, 350. 
Fertility : 

exhaustion of, 146 el seq. 

restoration of, 148 et seq. 
Fertilizers, 149. 
Finance : 

evolution of, 232 et seq. 

modern method of, 234 el seq. 

results of, 237, 238. 
Fixed capital, see Capital. 
Florida Everglades, 60. 
Food, 32, 34. 
Foreign trade, 243 et seq. 
Forests : 

conservation of, 11, 12, 68.' 

destruction of, 65 el seq. 

groups of, 63, 64. 
Franchise monopolies, see Monopolies. 
Free capital, see Capital. 
Free trade, 246, 249. 
Fruit growing, 143. 
Fuel, 33, 35. 
Funds, see Finance. 

G 

Gas, SI, 52. 

General property tax, see Taxation. 
Goods, see Economics. 
Government ownership, 344, 345. 
Government regulation : 

of railroads, 200 et seq. 

of trusts, 178 et seq. 

program of, 329 et seq. 
Grades of : 

enterpreneurs, 284, 285. 

laborers, 290. 

land, 268 et seq. 
Group monopoly, 298. 

H 

Health, 353. 

Holding company, 178. 

Hours of work : 

regulation of, 331. 

unionism and, 322, 323. 
Humus, 147. 
Husbands of industry, see Cooperation. 

I 

Ideals, 9 et seq., 352, 353. 
Illiteracy, 115. 



Immigrants : 

character of. 90. 

groups of, 89. 
Immigration : 

causes of, 88, 89. 

effect of, 89 et seq. 

restriction of, 92. 
Imports, 243. 
Income : 

inequalities in, 257 et seq. 

taxation of, 253. 
Indirect taxes, see Taxation. 
Individualism, 329, 330. 
Industrial monopolies, see Monopoly. 
Industry : 

accidents in, 95 et seq. 

character of American, 158 et seq. 

specialization in, 170, 184. 

women in, 107, 108. 
Interest : 

nature of, 274 et seq. 

rate of, 276 et seq. 

source of fund, 278, 279. 
International trade : 

basis of, 242. 

characteristics of, 243, 244. 

restriction of, 245. 
Interstate Commerce Act : 

main provisions of, 200. 

modifications of, 202, 203. 
Inventions : 

effect of, 162, 163. 

importance of, 140, 141. 
Iron, 52. 
Irrigation : 

act of 1902, 57, 

advantages of, 58. 

extent of, 57. 



Japan, 14. 



K 



Knights of labor, see Cooperation. 

L 

Labor : 

character in the United States, 82 

et seq. 
conservation of, 81. 
division of, 107, 183. 



360 



Index 



Labor : 

education of, 113 et seq. 

efiect of immigration on, 91, 92. 

groups of, 290. 

importance of, 79, 80. 

meaning of, 80. 

monopoly power of, 292, 293, 297, 
298. 

of children, 104 et seq. 

of women, 107, 108. 

organization of, 185 et seq., 297, 298. 

problems of, 103 et seq. 

risks of, 94 et seq. 
Land: 

and production, see Natural Resources. 

and taxation, see Single Tax. 

monopoly of, 258. 
Large scale production: 

advantages of, 169, 170. 

disadvantages of, 171, 172. 

nature of, 167, 168. 
Legislation : 

for railroads, 200 et seq. 

for trusts, 178 et seq. 
Legumes, 150. 
Leisure, 135, 353. 
Liability, 176. 
Light, 33. 
Living : 

cost of, 31 et seq. 

standard of, 23, 24, 33 et seq. 



M 

Machinery : 

development of, 160, 162, 163. 

importance of, 140, 141. 
Malnutrition, 109. 
Manager, 185, 282. 
Manufacturing, 160, 162, 163. 
Manure, 148, 149. 
Marginal rent, see Rent. 
Market gardening, 144. 
Minerals, 50 et seq. 
Mining accidents, see Accidents. 
Mississippi River, 75, 76 
Mobility of labor, 299. 
Money : 

and capital, 123, 124. 

and exchange, 223 et seq. 

and price, 211. 



Monopoly . 

and labor, 297, 298. 

and price, 214 et seq. 

and railroads, 191. 

and wages, 293. 

kinds of, 216 et seq. 

of capital, 258, 259. 

of land, 258. 

theory of, 262, 263. 
Mormons, 56. 

N 

Natural capacity, 351. 
Natural resources : 
of China, 14, 15. 
of United States : 

agriculture, 49, 138 et seq. 
forests, 62 el seq. 
minerals, 50 et seq. 
water, 69 et seq. 
Niagara Falls, 71. 
"No rent" lands, 268. 
Notes, see Credit. 

O 

"One" crop system, 147. 
Opportunity, 3 et seq.. 343, 352. 
Optimism, 350. 
Organization ; 

of business, 174 et seq. 

of labor, 185 et seq., 219, 220, 297, 298. 
Organizer, 185, 2S2. 
Overcapitalization, 238. 
Overproduction, 243. 



Panama Canal, 74. 
Paper money, see Money. 
Partnership : 

advantages of, 175. 

disadvantages of, 175. 

nature of, 175 
Petroleum, 51. 
Philanthropy : 

problems of, 310, 311. 

program of, 312 el seq. 
Police power : 

application of, 331. 

meaning of, 331 
Pools, 177. 
Population : 

of China, 14. 



Index 



361 



et seq. 



Population : 

of United States : 
early character, 82 e. 
later character, 85, 
Price : 

and monopoly, 214 et seq. 

and social surplus, 134. 

and value, 206 el seq. 

and wages, 41, 43. 

how determined, 211, 212. 

meaning of, 210. 

regulation of, 332 et seq. 

rise of, 43, 44. 
Production : 

cooperation in, 319. 

factors of, 46. 

large scale, 167 et seq. 

of new species, 152 et seq. 
Productivity, 261, 262, 291. 
Profits : 

law of, 284 et seq. 

meaning of, 282. 

nature of, 283, 284. 
Profit sharing : 

experiments in, 306, 307. 

forms of, 305, 306. 

meaning of, 305. 
Programs : 

of regulation, 329 et seq. 

of socialization, 337 et seq, 

of unionism, 322, 323. 
Progress : 

basis of, 349 et seq 

method of, 354. 

requisites of, 351 et seq. 
Prosperity : 

individual, 18. 

national, 13 el seq. 
Protection, see TarifiE. 
Public land, 140. 

Public monopolies, see Monopoly, 
Pueblos, 56. 



Quasi-public corporations, 191, 192. 

R 

Races : 

characteristics of, 89, 90. 
effect on labor, 91, 92. 



Railroads : 

control of, 190, 200 et seq. 

growth of, 190, 199. 

importance of, 190. 

nature of, 191. 
Reclamation : 

through drainage, 59, 60. 

through irrigation, 56 et seq. 
Recreation, 135, 313, 353. 
Regulation : 

of capital, 334. 

of labor, 333. 

of prices, 332 et seq. 

of railroads, 200 et seq. 

of trusts, 178 et seq. 
Rent: 

and standard of living, 32, 34. 

kinds of, 268 el seq. 

law of, 270 el seq. 

meaning of, 265, 266. 

single tax and, 338 et seq. 
Requisites : 

of managing ability, 282. 

of production, 46. 

of progress, 351 el seq. 
Resources, see Natural Resources. 
Risk: 

and interest, 278. 

and labor, 94 et seq. 



Sanitation, 332. 
Saving : 

and interest, 275. 

and social surplus, 137. 

how capitalized, 125. 

origin of, 125, 
Selection : 

artificial, 153. 

effects of, 154 el seq. 

natural, 153, 154. 
Sherman Act, 179. 
Single tax : 

advantages of, 339, 340. 

basis of, 340. 

future of, 341 

meaning of, 339, 
Socialism ; 

character of, 341. 

criticisms of, 342 el seq. 

limitations of, 345, 346. 



362 



Index 



Socialism : 

principles of, 344, 345. 
Social surplus : 

causes of, 133, 134. 

effects of, 18, 134 el seq. 

forms of, 17, 134. 

meaning of, 132. 

origin of, 17. 
Social work, 310 et seq. 
Societies, 204. 
Soil: 

conservation of, 149, ijo. 

exhaustion of, 147, 148. 
Specialized capital, see Capital. 
Standard of living : 

elements in, 33 et seq. 

meaning of, 23. 

wages and, 37 et seq. 
Standard prices, 244. 
Steam engine, 140 
Stock raising, 143. 
Stocks, 235. 
Strikes ; 

effects of, 325. 

meaning of, 324. 
Substitution : 

effect of, 2 IS, 300. 

meaning of, 299. 
Supply and demand: 

of capital, 277. 

of goods, 210 

of labor, 291. 
Swamp lands, 59, 60. 



Tariff: 

defect in, 253. 

purpose of, 245. 

revision of, 334. 
Taxation : 

and rent, 338 et seq. 

federal, 249, 250. 

kinds of, 249 et seq. 

principles of, 251 et seq. 

purpose of, 251. 

state and local, 251. 
Telegraph, see Transportation. 
Telephone, see Transportation. 
Trade : 

development of, 241. 

international, 242, 243. 



restrictions on, 160, 245. 
Trade agreement, see Unionism. 
Trade unions, see Unionism. 
Transportation : 

electric traction, 194, 195. 

express companies, 193, 194. 

railroad, 190 et seq. 

regulation of, 198 et seq. 

telegraph, 193. 

telephone, 193. 
Trusts : 

finance, 234. 

forms of, 177, 178. , 

nature of, 177 

regulation of, 178, 179. 

U 

Unemployment : 

causes of, 109. 

effects of, no 
Unionism: 

character of, 320, 321.' 

outlook for, 327. 

program of, 322, 323. 

weapons of, 324 et seq. 
United States : 

agriculture in, 138. 

and China, 14. 

business organization in, 174 et seq. 

climate of, 49, 50. 

forests of, 62 et seq. 

industry in, 158 et seq. 

labor in, 79 et seq., 185 et seq. 

minerals of, 50 et seq. 

transportation in, 189 et seq. 

wages in, 39 et seq., 322. 

water resources of, 69 et seq. 
United States Steel Corporation, 236. 
Utility : 

and value, 207 et seq. 

kinds of, 25, 26. 

law of, 26, 27, 209, 210, 

meaning of, 24. 



Valuation: 

of future, 277. 

of present, 275. 
Value: 

and price, 210 et seq. 

in exchange, 209. 



Index 



2>^?> 



Value : 

in use, 208. 

nature of, 207, 208. 
Variety : 

in consumption, 28, 29. 

in new species, 154, 155. 
Vegetable life, 155, 156. 

W 

Wages : 

actual wages, 39, 40 

and prices, 41, 43. 

average wages, 42. 

efiBciency wages, 38, 40. 

money wages, 289. 

real wages, 289. 

theory of, 288 et seq. 
Wage worker : 

semi-skilled, 186 

skilled, 186. 

unskilled, 187. 



Wants : 

kinds of, 24. 

meaning of, 24. 
Water : 

for power, 70 et seq. 

for transportation, 73 et seq. 
Waterways, 12, 73, 74. 
Wealth, xiii et seq. 
Welfare, 2 et seq. 
Welfare work: 

forms of, 308, 309. 

meaning of, 308. 

origin of, 308. 
Wheat, 156. 
Women workers: 

arguments against, 108. 

arguments in favor of, 109. 

causes of, 107, 108. 
Wood, see Forests. 
World markets, 243 



npHE following pages contain advertisements of a 
few of the Macmillan books on kindred subjects 



By SCOTT NEARING, Ph.D. 

Of the Wharton School, University of Pennsylvania 

Social Adjustment cioth, 377 pp.,%i.5onet 

" It is a good book, and will help any one interested in the study 
of present social problems." — Christian Standard. 

"A clear, sane gathering together of the sociological dicta of to- 
day. Its range is wide — education, wages, distribution and housing 
of population, conditions of women, home decadence, tenure of 
working life and causes of distress, child labor, unemployment, and 
remedial methods. A capital reading book for the million, a text- 
book for church and school, and a companion for the economist of 
the study desk." — Book News Monthly. 

Wages in the United States 

Cloth, i2mo, $7.25 net; postpaid, %i.35 
This work represents an examination of statistics offered by 
various states and industries in an effort to determine the average 
wage in the United States. As a scholarly and yet simple state- 
ment it is a valuable contribution to the study of one side of our 
social organization. 

Economics 

By SCOTT NEARING and FRANK D. WATSON 

Both Instructors in Political Economy in the Wharton School 
of Finance and Commerce, University of Pennsylvania 

Cloth, 8w, 4gj pp., $i.go net 

The book discusses the whole subject of prosperity of the factors 
which enter into the complex economic life of the nation. A young- 
man who wishes to read even the daily paper with full intelligence 
would find time spent in reading this book well employed for the 
help which it would give him in understanding current discussions 
of such topics as the standard of living ; the natural resources of the 
country and their conservation; the relations of labor and immi- 
gration ; of the labor of women and children to industrial progress ; 
of organization in business and its tendencies ; of the growth and 
functions of large corporations ; of public ownership ; of the vari- 
ous experiments which have been tried at different times, or the 
programmes which social leaders are now proposing for the remedy 
or the prevention of economic injustice. 



THE MACMILLAN COMPANY 

Publishers 64-66 Fifth Avenue New York 



Principles of Economics 



By F. W. TAUSSIG, Henry Lee Profes- 
sor of Economics in Harvard University 

Cloth, 8vo, 2 volumes, $4.00 net per set 

This book, which is addressed neither to specialists nor to chil- 
dren, but to students and the educated public, states simply but 
fully the main principles of economics and their application. It 
does not avoid difficult or severe reasoning, but centers attention 
on the larger problems and the important trains of reasoning and 
treats these liberally and fully. The book deals with the present 
day ; there is very little of economic history, very little about the 
phenomena of semi-civilization or barbarian society. The experi- 
ences and problems of countries of advanced civilization are primarily 
kept in view. American problems naturally receive considerable 
attention, but the author is chiefly concerned with those principles 
which are of general application in all of the leading countries of 
modern times. 



The Law of the Employment of Labor 

By L. D. CLARK 

Cloth, i2mo, %i.6o net 

In all the realm of economics it is strange that heretofore no 
book has been published dealing specifically and authoritatively 
with the legal aspects of labor. Mr. Clark has realized this, and his 
book covers the whole field of law as it affects the employment of 
labor in the United States. By the citation of an adequate num- 
ber of representative cases and statutes, the principles of common 
law in their most important phases as well as the nature and trend 
of legislation are discussed and illustrated in so far as these are 
applicable to workmen and their employers. 



THE MACMILLAN COMPANY 

Publishers 64-66 Fifth Avenue New York 



The Purchasing Power of Money 

A STUDY OF THE CAUSES DETERMINING THE 
GENERAL LEVEL OF PRICES 

AN EXPLANATION OF THE RISE IN THE COST OF LIVING 
BETWEEN 1896 AND 19 10 



By IRVING FISHER 

Yale University 

Author of " The Rate of Interest," " The Nature of Capital and Income," 
"A Brief Introduction to the Infinitesimal Calculus," etc. 

Cloth, 8vo, SOS pp., $3.00 net; by mail, $3.18 

In this important work are discriminated for the first time the five 
groups of magnitudes upon which alone the purchasing power of money 
depends. 

T/ie amount of money in circulation is more accurately determined 
than ever before ; the figures for the amount of bank deposits subject to 
check are entirely new. By an original method of ascertaining the 
velocity of circulation of money (explained in the Journal of the Royal 
Statistical Society for December, 1909) Professor Fisher has arrived for 
the first time at a reasonably exact estimate for that hitherto unknown 
element; his figures showing the velocity of bank deposits are the first 
of this kind ever published in the United States. The figures for the 
volume of trade are constructed by the method of Professor Kemmerer, 
applied with added elements and more detail and labor in the compu- 
tation. From the theoretical point of view the book is conservative, a 
confirmation of the older theories. From the practical point of view it 
touches a live subject, and will be found exceedingly interesting and 
incomparably valuable by all students who are interested in the present 
rise of the cost of living. 



THE MACMILLAN COMPANY 

Publishers 64-66 Fifth Ayenue New York 



BOOKS ON ECONOMICS, FINANCE, Etc. 
Practical Problems in Banking and Currency 

Being a number of selected addresses delivered in recent years 
by prominent bankers, iinanciers, and economists. Edited by 
Walter Henry Hull. With an Introduction by the Hon. C. F. 
Phillips, of New York. 
Published in New York, 1907. cioth, 8vo, 596 pp., $3.50 net 

A compilation of addresses delivered since 1900 before associations of 
bankers throughout the country. The addresses are grouped under the fol- 
lowing heads : General Banking ; Banking Reform and Currency ; Trust 
Companies. 

Outlines of Economics 

By Richard T. Ely, Ph.D., LL.D., Professor of Political Econ- 
omy in the University of Wisconsin. Revised and enlarged by 
the Author, and Thomas S. Adams, Ph.D., Professor of Political 
Economy in the University of Wisconsin ; Max O. Lorenz, Ph.D., 
Assistant Professor of Political Economy in the University of Wis- 
consin ; Allyn a. Young, Ph.D., Professor of Political Economy 
in Leland Stanford, Jr., University. 

Cloth, 'joo pp., %2.oo net 

Economics 

By Scott Nearing and Frank D. Watson, Instructors in 
Political Economy in the Wharton School of Finance and Com- 
merce, University of Pennsylvania. 

Cloth, 493 pp., i2ino, %i.go net 

Economics 

By Frank W. Blackmar, Ph.D., Professor of Economics and 
Sociology in the University of Kansas. 

Cloth, 546 pp., i2mo, $1.40 net 

Economics 

By Edward Thomas Devine, SchiiT Professor of Social Econ- 
omy in Columbia University, General Secretary of the Charity 
Organization Society of the City of New York. 

Cloth, 404 pp., i2mo, $1.00 net 



THE MACMILLAN COMPANY 

Publishers 64-66 Fifth Avenue New York 



BOOKS ON FINANCE, Ere— Continued 

The Nature of Capital and Income 

By Irving Fisher, Ph.D., Professor of Political Economy in 
Yale University. cloth, 8vo, 427 pp., ^3.00 net 

The Rate of Interest 

Its Nature, Determination, and Relation to Econo7Jiic Phenomena. 
By Irving Fisher, Ph.D., Professor of Political Economy in Yale 
University. cioth, 8vo, 442 pp., Ij.oo net 

International Commercial Policies 

M^ith Special Reference to the United States. A Text-book, by 
George Mygatt Fisk, Ph.D., Professor of Commerce in the Uni- 
versity of Illinois. Ealj leather, i2mo, 288 pp., $1.25 net 

Socialism before the French Revolution 

A History. By William B. Guthrie, Ph.D., Instructor in 
History, College of the City of New York. 

Clolh, i2mo, 3jgi pp., $1.^0 net 

Socialism in Theory and Practice 

By Morris Hilquit. cloth, i2mo, 361 pp., %i.5o net 

A History of Political Economy 

By John Kells Ingram, LL.D., Fellow of Trinity College, 
Dublin. Cloth, i2mo, 250 pp., %i.5o net 

An exposition of the historic development of economic thought 
in its relations with general philosophic ideas, rather than an ex- 
haustive account of economic literature, although all the really 
important works on the science are noticed. 

The Principles of Economics 

A Fragme7tt of a Treatise on the Industrial Mechanism of Society 
and Other Papers. By the late W. Stanley Jevons, LL.D., 
M.A., F.R.S., with a Preface by Henry Higgs. 

Cloih, 8vo, 2^3 pp., $3.25 net 

THE MACMILLAN COMPANY 

Publishers 64-66 Fifth Avenue New York 



BOOKS ON FIN A'NCE, Etc.— Continued 

An Introduction to the Study of Political Economy 

■ By LuiGi CossA, Professor in the Royal University of Pavia. 
Revised by the author, and translated from the ItaUan by Louis 
Dyer, M.A., BalUol College. 

Cloth, i2mo, 557 pp., %2.6o net 

Outlines of English Industrial History 

By W. Cunningham, D.D., Fellow and Lecturer of Trinity 
College, Cambridge, and Tooke Professor of Economic Science in 
King's College, London, and Ellen A. McArthur, Lecturer of 
Girton College, Cambridge. 

Cloth, 1 21)10, 274 pp., $7.50 net 

Outlines of Economic Theory 

By Herbert Joseph Davenport, Ph.D., Associate Professor 
of Economics in the University of Chicago. 

Cloth, 8vo, jSi pp., $2.00 net 

Economic Essays 

By Charles Franklin Dunbar, late Professor of Political 

Economy in Harvard University. Edited by O. M. W. Sprague, 

. Assistant Professor of Economics in Harvard University. With an 

Introduction bv P". W. Taussig, Henry Lee Professor of Economics 

in Harvard University. ^^^^^^^ ^.^^ ^^^^ ^^^^ ^^^ ^^_^ ^^^^^ ^^^^ 

Principles of Economics. Vol. I 

By Alfred Marshall, Professor of Political Economy in the 
University of Cambridge. 

Published in London, 1890. Fifth Edition, 1907. 

Cloth, 8vo, 870 pp., $3.75 net 
Contents 

Book I — Preliminary Survey. 

Book II — Some Fundannental Notions. 

Book III — Of Wants and Their Satisfaction. 

Book IV — The Agents of Production. 

Book V — General Relations of Demand, Supply, and Value. 

Book VI — The Distribution of the National Income. 



THE MACMILLAN COMPANY 

Publishers 64-66 Fifth Avenue New York 



BOOKS ON FINANCE, Etc. — Continued 

A History of Socialism 

By Thomas Kirkup. Published in London, 1892. Fourth 
edition, revised and enlarged, 1909. 

Cloth, i2mo, 436 pp., %2.25 net 

Elements of Economics of Industry 

Being the First Volume of Elements of Economics. By Alfred 
Marshall, Professor of Political Economy in the University of 
Cambridge. Cloth, i2mo, 440 pp., $1.00 net 

Essentials of Economic Theory as Applied to Modern 

Problems of Industry and Public Policy 

By John Bates Clark, Ph.D., Professor of Political Economy 
in Columbia University. Cloth, 121710, 566 pp., %2.oo net 

An Introduction to the Industrial and Social 
History of England 

By Edw^ard p. Cheyney, Professor of European History in the 
University of Pennsylvania. 

Published in New York, 1901. Sixth reprint, 1909. 

Cloth, i2mo, 317 pp., $1.40 net 

The Industrial History of the United States 

By Katharine Coman, Ph.B., Professor of Economics and 
Sociology in Wellesley College. 

Cloth, i2mo, 34J pp., $1.25 net 

The Distribution of Wealth 

By John R. Commons, Professor of Political Economy in the 
University of Wisconsin. cloth, i2mo, 258 pp., %i.25 

A concise summary of the practical outcome of the various 
theories of distribution. 



THE MACMILLAN COMPANY 

Publisliers 64-66 Fifth Avenue New York 



MAY 9 1912 

BOOKS ON FINANCE, Y.tq. — Contiyiued 

Principles of Political Economy 

By J. Shield Nicholson, M.A., D.Sc, Professor of Political 
Economy in the University of Edinburgh. 

Published in London. Second edition, 1902. In three volumes. 

Vol. I — Production and Distribution. 

Cloth, 8vo, 4ji pp., $j.oo net 

Vol. II — Exchange. 

Cloth, 8vo, 328 pp., %2.25 net 

Vol. Ill — Economic Progress and the Economic Functions of 
Government. 

Cloth, 8vo, 460 pp., %3.oo net 



Dictionary of Political Economy 

Edited by R. H. Inglis Palgrave, F.R.S. 
Published in London, 1894-9. Corrected edition, with appendix, 
1906-9. 

Three volumes, cloth, 8vo, ^15.00 net 

Vol. I — A-E, 800 pages. 
Vol. II — F-M, 848 pages. 
Vol. Ill — N-Z, 881 pages. 

A scholarly work covering the entire field of political economy, 
containing ample and trustworthy information, an abundance of 
verified documents, and a bibliography of inestimable value. 

Introduction to Public Finance 

By Carl Copping Plehn, Ph.D., Professor of Finance in the 
University of California, 

Cloth, i2tvo, 46S pp., %i.75 net 



THE MACMILLAN COMPANY 

Publishers 64-66 Fifth Avenue New York 



MAY 9 1912 



